Bankers concerned on stablecoins’ impact on monetary policy

Kuroda and Powell agreed stablecoins can be a risk for the financial system but said cryptocurrencies are not a threat

During the recently held ECB Forum on Central Banking, Bank of Japan Governor Haruhiko Kuroda made a rather interesting statement regarding the difference between CBDC and stablecoins.

Speaking in front of European Central Bank President Christine Lagarde, Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey, Kuroda asserted it is important to differentiate three things from each other.

“One thing is stablecoins, which is money issued by private banks, but closely linked to the central bank currency so that the value is stable.

“And then, CBDC which is central bank currency. But as far as cryptocurrency, I don’t think it will have any serious impact on our monetary system.

“But certainly, stablecoins could have some impact on the financial system.” Kuroda said.

Mati Greenspan, founder and CEO of Quantum Economics commented that this is certainly a hot topic, and added he is glad Kuroda was able to break it down.

“When he made this statement, Kuroda was obviously referring to concerns surrounding the Chinese Digital Yuan, which is already in advanced stages of deployment and has many U.S. politicians worried,” said Greenspan.

Powell says stablecoins could represent a threat

Jerome Powell, for his part, seems to recognise the urgent nature of the situation, but he admitted that even if the Fed did come out with a CBDC, it may take “several years”.

On the other hand, speaking at the forum, he agreed with his Japanese colleague that stablecoins could represent a certain threat to the legacy system, declaring that “stablecoins can be very popular and they exist mostly outside of the regulatory perimeter.”

However, because stablecoins exist outside of regulation, Powell stressed the governments have to be careful “as they are public money and they look too much like bank deposits”.

Powell said that while Bitcoin and other cryptocurrencies are not a problem, tokens, such as Tether which is backed by the American dollar, are a source of concern for monetary policymakers.

Greenspan commented that “the US could benefit greatly by bringing these stablecoins into the regulatory perimeter”.

“Since they look and act so much like native dollars, by allowing private banks to issue digital currency in the same way they already issue units of this fiat currency, they would not only resolve the chair’s stated concern but also the previously mentioned China issue as well,” said Greenspan.

He added, though, that Powell shouldn’t be blamed because he’s under immense political pressure at the moment.

Be it as it may, the central bankers agreed that the role of the dollar as a world reference currency will not change for crypto assets, so they do not consider them a threat.

Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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