Early this morning, the White House announced that Biden had nominated Jerome Powell (Jerome Powell) appointed by former President Trump for re-election as the chairman of the Federal Reserve, and the Fed is equivalent to the central bank of the United States. Biden said that Powell played a key role in helping the United States recover its economy during the epidemic. At the same time, it nominated Lael Brainard, who was regarded by the public as the best candidate to succeed Powell, as the vice chairman. After the announcement, bank stocks such as Bank of America and JP Morgan Chase generally rose, the yields of U.S. Treasury bonds also rose, and the dollar strengthened.
Under Powell’s leadership, the inflation rate was much higher than the initial target of 2%. Moody’s Analytics estimates that the US$1 trillion [Infrastructure Act] passed by Congress not long ago, combined with the [Social Expenditure and Climate Act] of nearly US$2 trillion, will increase the average inflation in the United States from 2022 to 2024. 0.3 percentage points.
High inflation seems to have become the core of market transactions in the past year. Some economic scholars in the United States believe that the duration of inflation is much longer than expected by the Fed. This is due to a combination of increased consumer demand, supply chain disruption, and labor shortages. effect. However, more people in the crypto community believe that inflation is mainly due to money printing.
However, all aspects of high inflation, not reaching full employment, how to restore the economy, and how to create the U.S. central bank’s digital currency have also become thorny issues that the Fed needs to face. Claudia Sahm, a former Fed official, believes that the Fed is facing its “hardest period in history” in 25 years.
Powell’s second term will begin in early February next year, and the next few months will be the key to determining his next term. Let’s review his views on Bitcoin, stablecoins and CBDC over the past few years.
Bitcoin is “digital gold”
Powell joined the Federal Reserve Board of Governors for the first time in 2012 after working in the banking industry and government services for a long time. At that time, the price of Bitcoin was less than $100, and it was mainly found in cryptography enthusiasts and a few primitive exchanges. Powell did not comment on Bitcoin.
But when Powell was nominated as the chairman of the Federal Reserve in 2018, Bitcoin was in a very different position, soaring to a price of nearly $20,000 in December 2017.
In 2019, he called Bitcoin “a speculative store of value, just like gold.” In the past two years, his views have not changed. In March of this year, when Bitcoin touched the price of $60,000 for the first time, he reiterated at the Bank for International Settlements Innovation Summit that Bitcoin can be regarded as an alternative to gold. He supported the views of some crypto market participants that Bitcoin It is a new kind of “digital gold”. However, Powell also warned of the volatility of crypto assets.
“They are more like a speculative asset, so they are not particularly useful as a means of payment. It is essentially a substitute for gold, not the U.S. dollar. I think for crypto assets, the public needs to understand the risk, that is, there is volatility. , There is also the energy demand for mining, and they don’t have any support.”
The necessity of CBDC
In fact, more than 80% of countries in the world are exploring digital currencies. China’s digital renminbi is far ahead, followed by emerging market countries such as Cambodia, Venezuela and Ukraine, and Europe is also moving forward.
China’s digital renminbi has always been at the forefront. Since the closed beta in developed cities in 2020, many digital renminbi red envelopes have been issued to citizens. Not only that, but also large companies such as JD.com and Meituan, as well as subways in some regions, are also busy. Pilot. As early as 2014, the People’s Bank of China initiated research on digital currency. In 2016, the Central Bank Digital Currency Research Institute was established. At the end of 2019, the top-level design, standard formulation, and joint debugging and testing were completed.
In 2019, in the United States on the other side of the ocean, a conference on “Digital Currency Wars: National Security Crisis Simulation” organized by Harvard seemed to have turned the conference room into a White House intelligence room. Faculty and staff from Harvard and MIT and invited former government officials discussed what the future of the United States will look like if the dollar’s economic dominance ends, and whether the United States should develop its own digital currency. At the meeting, Jennifer Fowler, then the director of national intelligence in the United States, pointed out that the crisis of China’s digital currency should be recognized, which will also be a challenge facing the United States. This crisis simulation conference showed that the issuance of China’s digital currency will severely weaken the dominance of the U.S. dollar in the global financial system.
On the same day as the simulated crisis meeting, Powell wrote a letter to the U.S. Congress in response to concerns about the U.S. Central Bank’s low competitiveness in CBDC, calling for the introduction of U.S. digital currency as soon as possible. “We have assessed and will carefully analyze the costs and benefits of implementing such programs in the United States, and are carefully monitoring the activities of central banks in other countries to determine the potential benefits of developing digital currencies.”
However, to date, the United States has not made much progress on the CBDC. The reason may be that the Fed officials have different views on the CBDC and have not reached an agreement. Although Powell strongly advocated the development of CBDC, he also claimed that “if the U.S. launches a digital dollar, stablecoins are not needed.” However, Randal Quarles, Vice Chairman of the Federal Reserve, believes that given the current use of stablecoins, The development of CBDC may not be necessary.
Stablecoins need to be regulated, but there is no intention to prohibit encryption
Although Powell does not believe that Bitcoin poses a real threat to the U.S. dollar, this does not mean that he will let the crypto assets go unchecked. He believes that crypto stablecoins with low volatility are improvements to crypto assets such as Bitcoin, but they cannot replace the current global monetary system.
According to Coingecko’s data, as of the time of writing, the total market value of global stablecoins is about 150 billion U.S. dollars, of which USDT is far ahead, occupying about 49% of the market share, followed by USDC at about 25%.
In July this year, Powell talked about stablecoins in the Monetary Policy Report for the First Half of 2021 submitted to Congress. He believes that stablecoins should be regulated in a “similar way” to bank deposits.
At present, the stable currency with the highest market capitalization is Tether’s USDT, which is also the most rigorous stable currency reviewed by regulatory agencies. Although Tether once claimed that each USDT is backed by real U.S. dollars and deposited in a bank, it later disclosed that most of its capital reserves were commercial paper or debt. Although commercial paper is a company’s short-term overnight bonds, most of the time they are investment and highly liquid, but if the market starts to fall, then people will want to get their money back. The economic activities of stablecoins are very similar to bank deposits, and they need to be subject to similar regulatory methods.
At present, stablecoins are still the source of concern for Fed Chairman Powell, Securities and Exchange Commission Chairman Gensler, and Treasury Secretary Janet. They set up a working group to initiate a regulatory framework for U.S. dollar-linked assets; the organization’s report calls for stability The currency is subject to more supervision, and USDT, the leading stable currency in market value, may be the most negatively affected.
In September of this year, North Carolina Congressman Ted Budd asked Powell a question:
“You thought in July that if we have American digital currency, then there is no need for cryptocurrency. So Mr. Chairman, as a policy issue, do you plan to prohibit or restrict the use of cryptocurrency as we saw in China?”
Powell immediately clarified: “What is not needed is stablecoins, not cryptocurrencies.”
“We have no intention of banning cryptocurrencies. But stablecoins are like money market funds, like bank deposits. But they are beyond the scope of regulation to some extent, so it is appropriate to be regulated.”
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