U.S. Congressman Stephen Lynch raised concerns over the impact of a CBDC on digital assets during the House Financial Services Committee. He asked Fed Chair Powell about the potential of a tokenized US dollar to harm other digital assets. Powell expressed uncertainty about the value of non-dollar-backed cryptocurrencies and refrained from commenting on the impact of CBDCs. This occurs as regulators worldwide scrutinize cryptocurrencies, with some countries exploring their digital currencies for financial transactions.
“I’m worried about a lot of these stablecoins and other cryptocurrencies,” Lynch said. “Do they go to zero when we come up with a CBDC that has the full faith and credit of the United States behind it?”
“Stablecoins can certainly be a useful part that serves consumers efficiently when properly managed,” Powell said. “At the moment they don’t. They have the potential to scale, especially when connected to one of the very large technology networks in existence. ”
“You can have a systemically important instant payment network, but without proper regulation and security. The public relies on the government, and especially the Fed, to make sure the payment system is safe and reliable. “
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The US Federal Reserve has been quietly studying the potential of a Central Bank Digital Currency (CBDC) for years. CBDCs are digital currencies that function like stablecoins, pegged to fiat currencies like the US dollar. Unlike stablecoins issued on decentralized networks, CBDCs are managed and issued by governments. Benefits include faster, cheaper transactions, greater financial inclusion, and reduced fraud.
