Apocalypse FedNow.

The Federal Reserve Chair, Jerome Powell, spoke to Congress and the House Financial Services Committee on June 21, 2023. At a time when the central bank had temporarily paused rate hikes due to lockdown-induced monetary inflation via stimulus measures, Powell found himself at a crossroads of monetary policy, regulation, and capital requirements. FedNow, an inter-bank communication platform, was set to launch in July, and Powell was facing a decision on the formal founding of the digital dollar system. Powell emphasized the importance of the dollar as the world’s reserve currency, and the U.S. Treasuries as the world reserve asset. While the public has expressed concerns over the direct issuance of retail CBDCs, Powell believes that payment stablecoins are a form of money and that a robust federal role is necessary in regulating them. Powell also spoke about FedNow’s role in creating more efficient levers for the Fed to have control over overnight banking rates. FedNow will enable complete centralized control over the overnight rate of borrowing dollars, the necessary transferring of Treasuries between banks, and the reshoring of dollar-denominated activity away from the Eurodollar market and back to the United States. Powell expressed support for a central bank digital currency intermediated by banks rather than one for individuals.The passage discusses various topics related to the digital currency industry. The first part talks about the views of a person who believes that the private sector banks should continue their role of government debt purchasing to create credit via dollars in retail accounts, rather than individuals having accounts at the Federal Reserve. It also mentions the SEC serving a Wells Notice to Paxos, the issuer of BUSD, limiting Binance’s ability to compete in the dollar creation industry. The second part talks about Basel III, an international capital requirement, which would require any bank wanting to hold digital assets to also hold an equal-part dollar to dollar-denominated valuation of their investments. The discussion suggests that this would force a net-demand for dollars in the U.S banking system, despite a high monetary inflationary environment. Finally, the passage talks about BlackRock ETF, an investment firm that filed for an application to launch Bitcoin ETFs, and other institutional asset managers seeking to do the same, despite previous rejections of every spot Bitcoin ETF application filed. The passage also mentions that BlackRock uses Coinbase for bitcoin custody and has a minority equity interest in the issuer of USDC.

ETFs are frequently utilized by major financial institutions to short commodities. However, recent indications from the most significant regulatory bodies in the United States suggest that there is a genuine possibility of increased creation of digital dollars and an increased purchasing power of bitcoin, a reserve asset that is not affected by changes in demand. There are few investment firms larger than BlackRock and few banking entities larger than Bank of New York Mellon. In terms of influence on the global economy, there are few government bodies more influential than the Fed and the SEC.

This is institutional adoption. However, it is important not to celebrate prematurely.

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