Fed Wants to Extend Dollar Hegemony Through Stablecoin

"We do see payment stablecoins as a form of money, but wouldn't continue exploring the launch of a CBDC."

Jerome Powell, chairman of the U.S. Federal Reserve System(Fed), expressed opposing views on stablecoins and "Central Bank Digital Currency (CBDC)" at the U.S. House of Representatives Financial Services Committee on the 22nd.

Powell, who emphasized that the source of the currency is the trust given by the central bank, stated that the Fed would give the stablecoin its authority, while specifying that Fed has no intention to issue the CBDC yet.

Powell said "The stablecoin is a form of currency, and the ultimate source of the currency is the trust presented by the central bank," adding, "For this, the Fed should put appropriate trust in the stablecoin and present a regulatory framework as part of it."

However, there were opposing opinions on the CBDC. He dismissed the possibility of CBDC issuance, saying, "There is no plan to issue it in a short period of time."

Powell's remarks, "We acknowledge the stablecoin, but the CBDC is not yet," represented the Fed's stance so far. The Fed's stance was consistent. "Stablecoin will increase the dollar's status due to its excellent usability, but CBDC cannot find any resonable reasons for issuance."

Stablecoins and CBDCs can be seen very similar at first glance in that they pass the equivalent value of legal currency 'dollar'.

Why does the Fed and Jerome Powell have such opposing views on the two objects that may seem similar?

The answer can be inferred from a border crossing characteristic of stablecoin and the somewhat contradictory moves the Fed has made regarding CBDC.

# Fed loves 'cross-borderness'

Stablecoin is 'digital' in origin even though they have the characteristic of linking value with legal currency. It is issued based on the space called digital, which has no restrictions on borders, so the scope of its use is not greatly restricted by certain jurisdictions.

The fact that the No. 1 stablecoin tether (USDT) in market capitalization is essential for multinational users who use the exchange as the key currency of global cryptocurrency exchanges around the world is the obvious evidence on it.

CBDC, on the other hand, is a digital currency issued on clear jurisdiction based on borders. Considering that legal money has simply been replaced digitally, CBDC virtually loses its value as a currency when it leaves the jurisdiction of issuance. The CBDC does not escape the constraints of jurisdiction.

It can be assumed that the Fed grasped and targeted this very point.

The dollar issued by the Fed, 'Central Bank of the United States', is the world's key currency. The dollar has generally exercised and guaranteed its value around the world as a global trade settlement and the government bonds of the United States, 'The World's Strongest'.

The Fed may want to digitalize the dollar's origins in order to not lose its utilization and power as the world's key currency. The tool that enables this can be the stablecoin distribution network.

The Fed has issued messages like this several times. The Fed said in a report at the 'International Role of the U.S. Dollar' conference in July last year, "Stablecoin development can further strengthen the role of the dollar as a global key currency and enhance the dollar's status."

# "It looks like CBDC, but it's not CBDC"

The Fed's attitude toward issuing CBDCs was very contradictory.

Repeating the position that "We cannot find the meaning of issuing CBDC clearly," the Fed announced the emergence of the real-time dollar payment system 'FedNow' in July this year.

FedNow is the launch of a dollar payment system developed by the Fed, emphasizing efficient dollar payments. The Fed stated that it did not integrate blockchain at the time of FedNow's design.

But in May, the Fed suddenly announced a plan to integrate the 'partial' blockchain into FedNow. The Fed announced that it will integrate 'Metal blockchain' into FedNow through collaboration with blockchain company Metallisius.

FedNow's plan to integrate metal blockchain, announced by the Fed, meant 'hybrid'. Among the dollars distributed through FedNow, if users want, they can exchange the dollars deposited in FedNow for dollars issued on the Metal blockchain through payment processing apps such as 'Paypal' and 'Benmo'.

The Fed made it clear that the FedNow is not a CBDC.

However, FedNow's Metal blockchain integration was enough to be interpreted as CBDC in that it was used as a U.S. domestic transaction with the same value as the dollar.

# What are the movements captured in Hong Kong and the Fed's intention?

The answer to the Fed's somewhat contradictory move may be found in the case of Hong Kong.

In November last year, Hong Kong's central bank issued Hong Kong's CBDC 'Digital Hong Kong Dollar(e-HKD)' through the "Aurum Project" developed by the Bank for International Settlements(BIS).

Previous CBDC projects that developed in other central banks contain the concept that CBDC is issued, distributed, and managed by only the central bank. However, the Aurum project was a little different from the CBDC that many countries unveiled. It contains the world's first concept that the central bank gives CBDC status to stablecoins issued by financial institutions and oversees the distribution of them. While the majority of central banks are developing CBDCs, a different movement has been detected in Hong Kong.

The Fed's lukewarm attitude toward CBDC development, on the contrary, its advocacy stance on stablecoins, and Hong Kong's case can infer that the Fed may want dollar circulation worldwide through its stablecoins distribution network.

The Fed may want to continue its dollar hegemony with dollars that have been digitally converted from origin through its stablecoin distribution network.

Fed Chairman Jerome Powell's remarks can be interpreted as his wholehearted and thorough political move by the Fed.

권승원 기자 ksw@