“Stablecoins Must Be 100% Backed By Cash” And “Only Be Issued By Depository Institutions,” Says Sen. Cynthia Lummis

Philadelphia Federal Reserve Bank President Patrick Harker said on Wednesday that he supports the beginning of tapering of the central banks’ asset purchases before the year is over.

“I would be supportive of moving that as soon as November, that we would start that process, but that is up to the full committee,” Harker said at a virtual event, adding that he would like to finish the tapering by the middle of 2022 and then the potential rate increases would be subject to where the economy is.

During his speech, Harker also said that some stablecoins and central bank digital currencies (CBDC) could be used for payments in the future but added that cryptocurrencies are speculative investments.

On the topic of stablecoins, an ardent crypto supporter Senator Cynthia Lummis said they should be backed by cash and may need to be issued by banks. Her concern is that stablecoins might not be not fully backed “in a transparent manner.”

Lummis, in a speech Wednesday on the Senate floor, said,

“Stablecoins must be 100% backed by cash and cash equivalents, and this should be audited regularly.”

“It may be the case that stablecoins should only be issued by depository institutions or through money-market funds or similar vehicles.”

“There Is A Sense Of Urgency”

This week, US Fed Chair Jerome Powell, meanwhile, yet again talked about the digital dollar but didn’t say anything new.

Powell said the central bank is still evaluating whether it should issue its own CBDC and, if so, in what form. He reiterated that it is more important to make “well-informed” decisions than to be fast with a digital dollar. He did acknowledge that the Fed should not wait too long as “there is a sense of urgency” in terms of digital currencies.

Speaking virtually at the ECB Forum on Central Banking, Powell said it is important to determine that such an asset would “serve the public well.”

The Fed is currently working on a paper on which it seeks comments from elected representatives, Powell added.

A Boston Fed official also said on Wednesday that the first phase of a multi-year research project they have been doing with the MIT on the technology that could be used for a digital dollar is nearly done and could be released in the coming months.

This research, dubbed “Project Hamilton,” is separate from the paper Powell has been talking about though both will be released over the summer.

During a virtual panel focused on payments, Boston Fed senior vice president Jim Cunha said the initial findings from the research would include open-sourced code that could serve as a potential model for a digital dollar and will also focus on the system’s ability to handle a high volume of transactions.

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