During Jerome Powell’s Jan. 11 United States Senate confirmation hearings, Sen. Patrick Toomey posed a question to the incumbent-and-future Federal Reserve chief: “If Congress were to authorize and the Fed were to pursue a central bank digital dollar, is there anything about that that ought to preclude a well-regulated privately-issued stablecoin from co-existing with a central bank digital dollar?”

“No. Not at all,” the central banker answered — a response that surely brought some relief to the crypto community. At least the Fed wasn’t seeking to ban stablecoins. That bullet had apparently been dodged.

But, Toomey raised a significant and abiding question: Can stablecoins and a Federal Reserve digital dollar really coexist? If individual Americans were to have retail accounts with the Federal Reserve — as Toomey posited in what may have been an exaggerated scenario — “and the Fed becomes the retail banker to America,” why does one even need stablecoins? Or traditional retail banks for that matter?

Indeed, in a discussion paper released on Jan 20, the Fed cited various potential risks associated with a digital dollar, including that a CBDC could effectively replace commercial bank money. That paper was aimed at eliciting public comment, while elsewhere the Fed has indicated no interest in rushing out a digital currency despite the efforts of other countries like China.

Not all assumed the two could co-exist. “A widely and easily accessible digital dollar would undercut the case for privately issued stablecoins,” Eswar Prasad, professor of…

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