Fed chair Powell: ‘easy to see the risks’ of cryptos

Powell says cryptos require a regulatory overhaul and changes to the law

US Federal Reserve Board Building                                 
Powell says cryptos require a regulatory overhaul to ensure the safety of the US economy – Photo:Alamy
                                

The chair of the US Federal Reserve, Jerome Powell, has said it is “easy to see the risks” that come with cryptocurrencies.

While outlining that the Fed supports innovation in digital finance, Powell said cryptos require a regulatory overhaul, and changes to the law are needed to ensure the safety of the US economy.

Powell made the comments at the Bank for International Settlements (BIS) Innovation Summit on the 23 March, The Wall Street Journal reports.

The Fed chair explained that the central bank would be guided by the “same activity, same regulation” principle. This means that regulated activities in the banking system will be subject to the same rules even if those activities fall outside the regulated banking sector.

Powell said: “There are potential financial-stability concerns for some products. We don’t know how some digital products will behave in times of market stress.

“It’s highly likely that digital financial activities that are currently outside the regulatory perimeter will… be brought within it, which is necessary to level the playing field, keep the trust of users, protect consumers, and all of that.”

Split on a US central bank digital currency

The Fed has been looking into the idea of issuing a US central bank digital currency (CBDC) but has been divided on the subject.

In August 2021, Fed governor Lael Brainard spoke out strongly in favour of a CBDC and said it was a matter of “urgency” for the US central bank to develop one.

However, in the same month, Fed governor Christopher Waller said he was “highly sceptical” that the Fed actually had a “compelling” case to create a CBDC.

Powell said the Fed was “only at the beginning of this journey” and that no decisions had been made as to the creation of a digital dollar.

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