WASHINGTON — The Federal Reserve signaled Thursday that it is looking to expand its oversight of stablecoins, just one day after China issued a warning about the financial stability risks of cryptocurrencies like Bitcoin and Ethereum.
In a video message, Fed Chair Jerome Powell also said the central bank would publish a discussion paper this summer detailing its current thinking on central bank digital currency and digital payments. He added that regardless of the Fed’s decision to develop a digital dollar, the Fed would “expect to play a leading role in developing international standards for CBDC.”
At the same time, Powell took a swipe at cryptocurrencies, arguing that while they could have benefits, they have “not served as a convenient way to make payments, given, among other factors, their swings in value.”
“As stablecoins’ use increases, so must our attention to the appropriate regulatory and oversight framework,” Powell said. “This includes paying attention to private-sector payments innovators who are currently not within the traditional regulatory arrangements applied to banks, investment firms, and other financial intermediaries.”
Powell’s comments follow a move from China earlier in the week to bar banks and payments companies from providing services related to cryptocurrency transactions, which accompanied a warning to investors against speculative trading. As a result, many digital currencies plunged in value on Wednesday.
Still, Powell said Thursday that the same technological advances that gave rise to cryptocurrencies could enable the Fed to issue a digital dollar, an area the central bank has been studying in collaboration with the Massachusetts Institute of Technology.
He added that following the release of the Fed’s discussion paper exploring CBDC, it plans to solicit public feedback on data privacy, financial inclusion and information security, in the hopes of “stimulat[ing] broad conversation.”
“We are committed at the Federal Reserve to hearing a wide range of voices on this important issue before making any decision on whether and how to move forward with a U.S. CBDC, taking account of the broader risks and opportunities it could offer,” Powell said. “The paper represents the beginning of what will be a thoughtful and deliberative process.”
Powell has maintained that if the U.S. chose to create a digital dollar, it would not replace cash, and would instead serve as a complement to existing payments.
“Our key focus is on whether and how a CBDC could improve on an already safe, effective, dynamic and efficient U.S. domestic payments system,” he said Thursday.
The Fed is also working on rolling out a real-time payments system, called FedNow, sometime in 2023. When FedNow is available, any financial institution with an account at one of the Fed’s regional banks will be able to use the service to process payments 24 hours a day year round.