Federal Reserve Chairman Jerome Powell on Wednesday came out strongly supporting a digital dollar, saying it could undercut the need for cryptocurrencies and stablecoins.

When asked during the congressional hearing if having a digital currency issued by the central bank would be a more viable alternative than cryptos in the payments system, Powell agreed and said:

“I think that may be the case and I think that’s one of the arguments that are offered in favour of digital currency. That, in particular, you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital US currency – I think that’s one of the stronger arguments in its favour.”

Powell said a discussion paper would be released in early September for the same, which he described as a key step in accelerating the Fed’s efforts to determine if it should issue its own central bank digital currency (CBDC).

During the hearing, Powell also shared his skepticism towards crypto assets becoming the primary payments vehicle in the US. But he does see stablecoin gaining more traction, and because of that, they need more regulation.

“We have a pretty strong regulatory framework around bank deposits,” which Powell said, “doesn’t exist currently for stablecoins.”

If stablecoins are going to be a significant part of the payments universe, which crypto assets won't be “but stablecoins might be – then we need an appropriate regulatory framework,” Powell added.

European Central Bank (ECB) also shared similar views on the same day as it said a digital euro would be more “environmentally friendly” than the energy consumption of Bitcoin.

This comparison came as ECB announced that it had launched the investigation phase of a digital dollar project that will last 24 months. ECB President Christine Lagarde said,

“Our work aims to ensure that in the digital age, citizens and firms continue to have access to the safest form of money, central bank money.”

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