In the United States, there will be no ban on cryptocurrencies — but one wonders what will become of central bank digital currencies, in particular the digital dollar, when (perhaps if) they are introduced into what will undoubtedly be a crowded field of digital currency choices.
Federal Reserve Chair Jerome Powell, late last week at a hearing on Capitol Hill, said that there was “no intention to ban” cryptos. He added that stablecoins are “they’re like bank deposits, but they’re to some extent outside the regulatory perimeter and it’s appropriate that they be regulated.”
Read also: Fed’s Powell Says He Won’t Try To Ban Crypto
So, there will be no wholesale crackdown on bitcoin and its peers, as seen in China. But Powell’s comments are less what we might term a clearing of the runway for cryptos than, really, a reaffirmation of the status quo.
In that case, cryptos are allowed to exist, be traded on exchanges, and eventually make further inroads into commerce.
But the regulatory gaze is upon them, and we need to go back to Powell’s statements in the summer.
Back then, the Fed chair stated in commentary before a Congressional committee that with a digital U.S. currency in place, “you wouldn’t need stablecoins; you wouldn’t need cryptocurrencies.” And that’s a shot across the proverbial bow.
A digital dollar, the argument goes, would be enough to eliminate cryptos. The implication seems to be that natural selection, for want of a better term, would help a digital dollar win out. Stablecoins, of course, might have an easier time of it on the Hill and with regulators, but only a bit. After all, they have the advantage of being backed with, well, something: cash, equivalents to cash and short-term treasuries. But Powell’s comments that you “wouldn’t need” the stablecoins or the cryptos implies that the functions of those digital offerings could be satisfied in one fell swoop.
But then again: Nature abhors a vacuum — and so does the financial services industry. The digital dollar has been relatively slow in coming, as the Fed has still been exploring concepts and technology. Deep dives — in the form of papers and commentary — that were supposed to debut at the end of summer have yet to be released. In the meantime, cryptos have proliferated. Bitcoin has been nothing short of volatile, but still, at least some observers have clamored to use cryptos in everyday commerce. As for stablecoins, recent PYMNTS research has shown that 58% of multinational companies use at least one type of cryptocurrency. Of that tally, roughly 29% are using stablecoins.
Now, the fact that there may not be explicit bans on cryptos and stablecoins does not mean they might be made a bit harder to use, so much so that they do not find a wider berth in commerce. As noted in this space last week, the Biden administration is examining more stringent regulations on stablecoins — particularly in a “blueprint” document that could come out this month.
If the regulatory agencies and the Fed decide to bear down on cryptos (including stablecoins) while convincing users that the digital dollars (officially backed by the U.S. treasury) won’t face such uncertainties, it might follow that there’d be a “flight” to the digital dollar.
After all, bitcoin is a store of value only in concept — worth what someone pays for it. Stablecoins backed by a range of assets may find that at least some assets are more “liquid” than others (commercial paper, for example, can be volatile as it is an unsecured debt instrument). We’ll know more about what the Fed plans to do in the coming weeks — and how it plans to position the digital dollar, to the possible detriment of cryptos and stablecoins.