U.S. Federal Reserve Chair Jerome Powell said that the crypto market would require new rules, as the existing regulatory framework can’t take into account the innovations of the market. Powell was speaking at the Bank of International Settlements summit.
Chair of the Federal Reserve Jerome Powell, speaking at the Bank of International Settlements Innovation Summit on central bank digital currencies (CBDCs), offered some insight into how the United States might regulate the market.
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New crypto rules
Powell said that the crypto market and associated technologies could have positive effects, but that it would necessitate the creation of new rules.
Powell said that distributed technology and decentralized finance have the “potential to improve the efficiency of the payment system and encourage a more competitive financial landscape.” This is quite an acknowledgment from the head of one of the country’s top financial agencies. Other agencies and their officials have come around to crypto and blockchain as well, though they all seem to encourage some controls.
On top of regulation, the Fed Chair said that the new products the market offers could have risks,
“There are also potential financial stability concerns for some products. In particular, we don’t know how some digital products will behave in times of market stress, which could lead to large destabilizing flows, nor do we know how stresses in crypto markets could potentially spill over into the traditional finance system.”
One other important highlight from the remarks relates to stablecoins, which has time and again been called out by U.S. authorities. They are looking to work these into the U.S. banking system through the new rules.
International cooperation a key focus
Meanwhile, the United States is looking into launching its own CBDC, but it is only in the preliminary stages of doing so. Powell said that the Fed hasn’t made an official decision on it yet, merely an initial review. A dollar-based digital currency was part of the far-reaching executive order signed by President Biden, which was the first major step taken by the government to regulate crypto comprehensively.
As stated before, Powell said that international cooperation on the matter of crypto and CBDCs is necessary. Stablecoins are viewed as threatening national currencies, and many governments want to impose controls.
Powell outlined four main factors behind a dollar-based CBDC, saying user privacy, “identity verifiable,” “intermediated” and accessibility. However, even a proof-of-concept is far away, so it’s likely a lot else in terms of regulation will come first.
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