“I am legitimately undecided on whether the benefits [of a central bank-issued digital reserve money] outweigh the costs or vice versa,” Powell said, further adding:
“The more direct route would be to appropriately regulate stablecoins, which we’re not– we don’t do right now. And that’s going to be a very important thing that we do, do.
So in terms of congressional authorization, you know, there are different views on that. I’ve said publicly– and I think this is right– that we would want very broad support in society and in Congress.
And ideally, that would take the form of authorizing legislation as opposed to a very careful reading of ambiguous law to support this. It’s a very, very important initiative. And I do think we should ideally get authorization.”
The race to digitize fiat money in a crypto-inspired form is heating up with China claiming it already has as it launches hardware wallets for e-CNY.
Europe is going ahead with an investigation phase on e-euro, but America has something neither has: a vast market of tokenized dollars used across the globe.
Just USDt and USDc are now in combination worth $88 billion. That’s 1.4% of M0 dollar supply, making it still a relatively small amount, but for both the euro and cny, it is at pretty much zero.
In addition, another crypto 10x is not out of question, so by the time Fed opens discussions on a digital currency in September, it’s not clear whether the boat would have sailed already.
“We do not need to fear stablecoins,” Fed Vice Chairman Randal Quarles said last month. “The Federal Reserve has traditionally supported responsible private-sector innovation.”
Fed thus can afford to “get it right” than to move quickly, but Europe in particular risks being left behind as tokenized dollar network effects intensify.
“These are economic activities that are very close to bank deposits and money-market funds. They need to be regulated in similar ways,” Powell said in regards to stablecoins.
However he needs to be careful to regulate ‘by consent’ because the market here is global and undue regulation can drive non-dollar tokanization.
On the other hand, sooner or later Fed will have to answer the question of whether these tokenized dollars are insured by the ultimate money issuer, the central bank, whether they are legal tender, and whether in effect they are government backed.
That’s the sort of questions they will have to deal with if they are going to start regulating, which for now is probably a bit too soon because the stablecoins market itself is transforming almost daily with significant innovation especially in decentralized finance.
There’s no reason currently to stand in front of that innovation, so opening discussions in autumn sounds like the right approach as it should give some time for a more stable stablecoins market to form at which point grandpas can put some ground rules so as to effectively make these legal tender.
The only way they then risk being beaten is if Europe launches a Libra style e-euro with a public chain and smart contracts where people can build Uniswaps and tokens while it all is fully integrated into the customer facing banking and payment system. Or alternatively if they anger the market and everyone moves to tokenizing euros.
On the other hand something like a plain e-CNY, where there’s almost no difference to CNY for end users, is probably an inferior approach to just letting the private market meet market needs through the profit motive that then drives more innovation as it has done in the case of tokenized dollar stablecoins.
So America faces a different situation and does so from a position of strength as well as comfort because the market is lightyears ahead when it comes to the e-dollar.
Interestingly however grandpa seems to suggest he is only interested in such a thing because reee bitcoin:
“You wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency – I think that’s one of the stronger arguments in its favor.”
He is mistaken obviously because he could have just said you don’t need gold or diamonds as there are dollars.
Bitcoin has a unique proposition in being a digital unit of account of fixed supply that exists completely outside of the banking system, including outside of the central bank. A bit like gold, but even more so because some 80% of gold is owned by central banks.
So an e-dollar would have nothing to do with bitcoin itself except in as far as like tether it can increase efficiency in global arbitrage, a need that gave rise to these tokenized dollars to begin with.
Stablecoins maybe would face more pressure from an e-dollar, but they have network effects as they are fully integrated, while an e-dollar would start from scratch with it unclear really just what the market would decide in the end as much depends on execution.
But in our view the primary reason to try such things is not ree bitcoin, more wow innovation. Uniswap on a euro network opens automated finance to the masses which might not be great for incumbents like the internet wasn’t for Blockbuster, but it should be great for end users as then borrowing and savings rates would be set by the market, rather than be manipulated by casino bankers.
You’d get new efficiency and one click access to leet finance in a way that when you look back twenty years ago you wonder just how we lived.
This is a world that is coming one way or another because its benefits are self evident and therefore the question of upgrade should be tackled with a clear eyed view of the interest of the public first, not that of entrenched interests for whom innovation has never cared as it brings new capabilities, in this case code money that natively digitizes all finance in an upgrade from what is still largely analogue finance in structure.