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Circle Internet Financial is arguing the U.S. Federal Reserve should pass on launching a digital dollar, arguing that could strangle private-sector efforts such as Circle’s to manage their own dollar-based tokens.
Circle, the issuer of the USDC stablecoin, said in a comment letter to the Fed that its token is already meeting “many of the potential benefits” of a central bank digital currency (CBDC) in the U.S.
“A host of companies, including Circle, have leveraged blockchain technology to support trillions of dollars of economic activity with fiat-referenced stablecoins,” the company told the Fed in a letter released Wednesday, responding to the Fed’s invitation to comment on a January report. “The introduction of a CBDC by the Federal Reserve could have a chilling effect on new innovations.”
The stablecoin industry has been suffering collateral damage recently from the ugly collapse of terraUSD (UST), although that was an algorithmic stablecoin, not one backed by reserves. Boston-based Circle made a case to the Fed that its USDC stablecoin – which ranks second by global market cap – is backed by “cash and short-duration U.S. government obligations” and the company assures the public regularly with attestations about the content of those reserves.
“USDC does not detract from, but in fact supports, the dollar’s role as the world’s reserve currency,” the company argued.
Circle also underlined potential harms a digital dollar might pose to traditional banking, which the banking industry itself pointed out in its own letters. The stablecoin issuer left the Fed with a remark that’s a common refrain among technology-intensive industries:
“It could be challenging for the Federal Reserve to issue a CBDC on a technology standard that does not quickly become obsolete, given the pace of technological advancements,” Circle argued in its letter. The letter added that the company does support a comprehensive regulatory structure for crypto in the U.S.
Fed officials have routinely said the U.S. central bank doesn’t intend to move forward on a CBDC without backing from the president and the Congress.