The world's most powerful central banker, Jerome Powell, recently challenged the need for digital assets if the U.S Federal Reserve Bank were to issue its own central bank digital currency.
The Fed Chief said that there wouldn't be any need for stablecoins and digital assets.
The central banker was responding to a question from Stephen Francis Lynch, a member of the U.S. House of Representatives from Massachusetts during the House Financial Services Committee testimony on whether a swift response on the Federal Reserve Bank's part of issuing a central bank digital currency would calm the market.
Jerome Powell was skeptical about cryptocurrencies becoming the main payments vehicle in the world's largest economy however added that stablecoins might gain some traction.
Federal Reserve Chairman went on to say that if stablecoins are going to be a part of the global financial system, then they needed to be regulated, as a regulatory framework doesn’t exist for stablecoins.
Stablecoins are a type of digital asset pegged to an asset such as a fiat currency or a commodity.
Crypto traders and global investors in principle assume stablecoins are backed fully by the fiat currencies held in federally insured US banks or their close equivalent. But that seems to be partly correct.
Tether Ltd, the most valuable stablecoin by market value recently disclosed it held about 25% of its reserves in bank accounts, cash, and government securities while keeping 10% in corporate bonds and the remainder in commercial paper.
The second leading stablecoin by market value USD Coin, also disclosed it keeps its reserves in insured US depository institutions and other approved investments, as financial experts argue the lack of transparency on what quality of commercial paper, bonds, and what other approved investments are held as collateral pose systemic risks.