Federal Reserve Advocates Enhanced Oversight and Recognition of Stablecoins as a Legitimate Currency, Affirms Powell

In a significant development, the United States Federal Reserve Board has recognized payment stablecoins as a distinct form of money, as confirmed by Chair Jerome Powell during his appearance before the House of Representatives Financial Services Committee. The committee’s semi-annual hearing on Fed policy took place on June 21 and shed light on the Fed’s stance on stablecoins.

Powell’s comments came in response to a query from Maxine Waters, the ranking member of the committee, regarding the proposed stablecoin bill. This bill, initiated by Republicans, aims to establish the first comprehensive crypto legislation in the United States, if enacted into law.

Waters highlighted concerns about the proposed bill, emphasizing the creation of “58 different licenses with federal regulatory approval over only two of the licenses.” The remaining licenses, according to the bill, would be issued by states, territories, and other jurisdictions, potentially leading to a significant increase in state-level private money creation. In response, Powell conveyed the Fed’s perspective:

“We do see payment stablecoins as a form of money, and we believe that it would be appropriate to have quite a robust federal role in what happens in stablecoin going forward.”

He further cautioned against the potential risks associated with allowing extensive private money creation at the state level, indicating that such a move would be unwise.

Notably, Powell’s viewpoint diverges from that of Securities and Exchange Commission (SEC) Chair Gary Gensler. Gensler previously stated that stablecoins might require registration and regulation, consistently maintaining that all cryptocurrencies, except Bitcoin, are classified as securities.

Powell’s position also contrasts with the claim made by Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam, who suggested that stablecoins could be classified as commodities. While the Federal Reserve lacks a readily accessible definition of money, it is generally regarded as a medium of exchange. In contrast, commodities are legally defined in the United States as “goods and articles […] and all services, rights, and interests […] in which contracts for future delivery are presently or in the future dealt in.” The definition of securities is notably more complex.

Simultaneously, on June 21, former CFTC Chair Chris Giancarlo expressed his views on the bill through an editorial in The Hill. Giancarlo highlighted a critical oversight in the bill, which grants licensing authorities the discretionary power to pressure stablecoin protocols into denying services to law-abiding but politically disfavored businesses. He labeled this omission as a “glaring” one, capable of enabling a government policy reminiscent of the Obama administration’s Operation Choke Point. Giancarlo proposed a straightforward solution to address this issue:

“The simple fix to this problem is to provide that government licensing authorities have no discretion to pick and choose among otherwise lawful activities and condition licensure on the stablecoin’s denial of legal transactions.”

Giancarlo cautioned that without this adjustment, stablecoin transactions could become excessively vulnerable to the unpredictable shifts in Washington’s political climate.

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