Fed Chair Says Congress Needs to Act on Crypto Regulation During Senate Testimony

Fed Chair Powell repeatedly stressed the need for Congress to create a crypto regulatory framework.

Wednesday afternoon, Federal Reserve Chairman Jerome Powell, delivered testimony to the Senate Banking Committee regarding his agency's monetary policies. He'll provide additional testimony to a House Financial Services Committee on Thursday. During his comments today, Powell covered several topics including rising costs for housing, gas, and food in 2022 as well as soaring inflation, which recently hit a 40-year high of 8.6% compared to the same period last year. The Fed chair also had several things to say about cryptocurrencies and stablecoins.

What Powell said today about stablecoins and cryptos

During his testimony, Powell compared a stablecoin, which by definition has its value backed by a reserve asset such as the U.S. dollar or gold, to a money market fund as a way to explain it to lawmakers.

"The way money market funds work is that there's great transparency about what's in the reserve and their requirements about what's required to be in the reserve in order to preserve that one dollar value. The world of stablecoins is new and emerging, and it doesn't have the fit-for-purpose regulatory scheme that it needs…many members of Congress now have proposed new frameworks for regulating stablecoins and digital assets generally, and that seems like a wise thing" Powell said.

He also noted that regulatory ambiguity is one of the biggest challenges right now facing the cryptocurrency sector. "Who really does have authority over this? That's something that Congress would need to clarify. We have authority over what some banks can and can't do. The SEC has jurisdiction over securities, and the CFTC has relevant jurisdiction Part of this will be sorting out what these things are, and how they should be regulated," he said.

Congress is making progress

However, he did note that Congress is making progress. "Congress is investing bandwidth and looking at proposals, that's a healthy process that should lead over time to something that has bipartisan support and puts in place appropriate regulation for the whole area. It's like any other area of major innovation. Ultimately Congress will come together to create a regulatory framework that's more fit-for-purpose for it as it has in so many other cases," he added.

At time of writing, the largest crypto by market cap -- Bitcoin -- was down 5% per coin trading at $19,928, according to CoinMarketCap. While cryptocurrency exchanges and the broader crypto market overall were down 3.83% on the day following Powell's remarks.