Placing bets on which candidate for Federal Reserve chair would be best for cryptocurrencies? The answer might disappoint: Both incumbent Jerome Po
Placing bets on which candidate for Federal Reserve chair would be best for cryptocurrencies? The answer might disappoint: Both incumbent Jerome Powell and leading alternate Fed Governor Lael Brainard are seen as having roughly the same impact.
The speculation of who will be the next Fed chair intensified after Senate Banking Chairman Sherrod Brown said early this week he was told by White House officials to expect a near-term nomination announcement from President Joe Biden. The anticipation got super-charged after Biden said Tuesday that he would make a final decision in about “four days.” That comment focused on the timing on Friday or Saturday.
Brainard is seen as the frontrunner to replace Powell and was one of the few prominent regulators to delve into cryptocurrencies early on.
But some crypto-savvy economists say the differences between the two candidates’ positions – on both digital-asset regulation and economic policy – are so slight and finely nuanced that the choice might not make a huge difference for the industry or cryptocurrency markets.
Both Powell and Brainard are seen as monetary-policy doves – meaning they would likely be more tolerant of inflation, if given a choice – and that might be a positive for bitcoin given the cryptocurrency’s use by many investors as a hedge against rising prices. They also, generally speaking, share a conviction that cryptocurrencies should not be allowed to grow unfettered to the point where they might threaten the existing financial system.
“I don’t think the Fed’s policies toward crypto would be that much different under Brainard than they would be under Powell,” said Ian Katz, managing director of Capital Alpha Partners, a consultancy that advises investors on federal policies. “Both are mainstream Fed institutionalists who would want a strong role for regulators in overseeing crypto and making sure it doesn’t cause financial-stability risks.”
Powell’s policy stances and track record of using generous monetary stimulus to help pull the U.S. economy out of the pandemic-induced economic malaise and market turmoil are well documented. But who is Brainard and more importantly what might her appointment mean for the crypto industry?
Who is Lael Brainard?
Brainard has been serving on the Fed’s Board of Governors since 2014 and previously served as undersecretary of the U.S. Treasury Department. She has master’s and doctoral degrees in economics from Harvard University.
Brainard has been one of the most outspoken Fed officials addressing cryptocurrencies since 2016 and has recently been delving into the possible issuance of a central bank-issued digital currency (CBDC).
“By introducing safe central bank money that is accessible to households and businesses in digital payments systems, a CBDC would reduce counterparty risk and the associated consumer protection and financial stability risks,” Brainard said in a prepared statement during CoinDesk’s Consensus 2021 event in May.
Powell recently said he doesn’t intend to ban cryptocurrencies altogether but said stablecoins need greater regulatory oversight. A stablecoin is a type of cryptocurrency whose value is tied to an outside asset, such as the U.S. dollar or gold, to stabilize the price.
Digital dollar
A digital dollar – a central bank-issued, tokenized form of the U.S. currency – could help improve financial access for the unbanked and make it easier to disburse government aid, according to some supporters of a the innovation. Some nay-sayers argue that existing technologies may be better suited for those tasks.
In the global race for countries adopting CBDCs, the U.S. is seen as slightly behind the curve, with a number of countries already experimenting with the concept, and China’s digital yuan already in trials.
“If other major jurisdictions are introducing CBDCs for purposes, not only of domestic payments, but international payments, it’s just very hard for me to imagine that the U.S., given the status of the dollar as a dominant currency in international payments, wouldn’t come to the table,” Brainard said in September during a National Association for Business Economics (NABE) panel discussion on the U.S. economy.
Powell versus Brainard
So would a nomination of Brainard mean a clear path to issue a U.S. dollar-backed CBDC? It’s complicated.
“I think certainly the people who want to see a more active Fed and a more hands-on Fed with regards to any rollout of a central bank digital currency would be backing Brainard, and they are certainly again, within the progressive wing of the Democratic Party,” Garrick Hileman, head of research at Blockchain.com, said in an interview with CoinDesk.
However, the decision might come down to Congress, since the Fed likely won’t be able to decide without legislative input.
“While the Fed would maybe gain a more vocal advocate for CBDC, I still think this is a congressional decision ultimately,” Hileman said. He added…
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