Congressman Lynch Worries About Crypto

Congressman Stephen F. Lynch asked Fed Chairman Jerome Powell about the potential negative impact of a US CBDC on the broad crypto market.

Capitol during the day
The effects of digital dollar on cryptocurrencies are difficult to predict

On March 8, Fed Chairman Jerome Powell submitted his semiannual monetary report to Congress. During the disclosure of findings before the US House Financial Services Committee, Powell was asked by Congressman Stephen F. Lynch about the impact of a US Central Bank Digital Currency (CBDC) on the crypto industry, specifically whether cryptocurrencies would "go to zero" if the central bank digital currency (CBDC) were introduced.

Read allso: Crypto crime hit a record $20 bln, with nearly half of it driven by U.S. sanctions

Lynch expressed his concern about the potential devaluation of cryptocurrencies, which are now being purchased by investors for "trillions of dollars."

Powell believes this can indeed happen to cryptocurrencies that are not pegged to fiat currencies and, in his view,"do not have any intrinsic value." The Fed Chairman also mentioned that he personally had never understood the valuation of non-stablecoin cryptocurrencies. Although he admitted that most stablecoins are pegged to the US dollar, there are no regulations in place to verify the collateral reserves of such assets.

According to Powell, the lower volatility and greater stability of a CBDC would be more beneficial to customers. "You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency. I think that’s one of the stronger arguments in its favor," the Fed Chair said.

In 2021, Lynch shared with the Facebook community the report of the hearings he had held to "examine how the use of a Central Bank Digital Currency might expand access to banking services of unbanked and underbanked communities". At the same time, he encouraged to consider CDBC's impact on financial inclusion, consumer privacy, illicit finance protections and business operations.

Read also: U.S. Justice Dept seizes $450m in Robinhood shares from FTX

Whether the digital dollar and crypto could coexist peacefully is yet to be seen. On the one hand, the advantages of the US CBDC mentioned by Powell can indeed attract more customers. On the other hand, many US citizens express strong opposition to the government-issued stablecoin, mainly because it can be a powerful tool for tracking individuals. Customers already suffer from the lack of anonymity while dealing with the traditional banking system, while the US stablecoin offers even more opportunities to monitor transactions.