Federal Reserve Chief Announces Feds ‘Exploring’ Creation of Government Cryptocurrency

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Federal Reserve Chairman Jerome Powell announced plans Thursday to “explore the implications” of issuing a digital currency created by the federal government.

“To date, cryptocurrencies have not served as a convenient way to make payments,” Powell said in a statement announcing the move.  “Coins tied to the value of the dollar or another currency, known as stablecoins, have emerged as a new way to make payments. These stable coins aim to use new technologies in a way that has the potential to enhance payment efficiency, speed up settlement flows, and reduce end user costs. But they may also carry potential risks to those users and the financial system.

“As stablecoins’ use increases, so must our attention to the appropriate regulatory and oversight framework,” he said.

Cryptocurrencies including USD Coin (USDC) and Tether (USDT) have emerged as so-called stablecoins, which are pegged at $1. However, Tether operator iFinex shelled out $18.5 million this year to settle a lawsuit filed by New York Attorney General Letitia James (D) this year, who said iFinex’s claim that its digital currency was backed by physical fiat “was a lie.” The issue contributed to critics’ skepticism of Tether and other stablecoins.

Powell said the Fed’s intention was to create a “complement” rather than a “replacement” for existing currencies, and that the Federal Reserve Board would issue a discussion paper on the topic in the summer ahead. “The paper represents the beginning of what will be a thoughtful and deliberative process,” he added.

The announcement came the same day the Treasury Department issued a 24-page plan for new tax compliance measures related to President Joe Biden’s American Families Plan. Among the plan’s highlights, the department said it was requesting the authority to begin dictating “minimum competency” standards for tax preparers. It also said it wanted to begin requiring businesses to report any transactions involving cryptocurrency valued at more than $10,000, and predicted such regulations would help the cryptocurrency market.

“Despite constituting a relatively small portion of business income today, cryptocurrency transactions are likely to rise in importance in the next decade, especially in the presence of a broad-based financial account reporting regime,” the department said.