Fed Chair Powell: New rules will be needed for crypto
Federal Reserve Chairman Jerome Powell on Wednesday said digital innovation in the financial sector is here to stay and with it, new regulations will need to be created.
“Novel technology like distributed ledger and decentralized finance have the potential to improve efficiency of the payment system and encourage a more competitive financial landscape,” Powell said, speaking on a panel at the Bank of International Settlements Innovation Summit on central bank digital currencies, or CBDCs.
The Fed hasn’t made a decision on whether to pursue a CBDC yet, Powell said, though it’s collaborating with other central banks on CBDCs, addressing frictions in international payments, and finding consensus on some principles. Central banks will need to coordinate on technology to ensure the proper transfer of monetary policy and payments within the global financial system.
Additionally, the Fed will likely collaborate with other central banks on other areas of crypto and financial innovation, including stablecoins, the chairman said, noting that financial regulations haven’t been built for cryptocurrencies and CBDCs and that new changes and even new rules will be needed.
Powell added that the Fed is looking at addressing regulatory gaps around digital assets and how they will work in the banking system.
“There are also potential financial stability concerns for some products,” Powell said. “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.”
Powell’s comments come after the central bank released a white paper earlier this year on the pros and cons of a CBDC and after President Biden signed an executive order earlier this month tasking various agencies with studying a CBDC and digital assets.
As part of the executive order, the U.S. Treasury is leading a report on a CBDC, in consultation with the Departments of Justice, State, Commerce, Homeland Security, Office of Management and Budget and Director of National Intelligence, to analyze whether a digital dollar is sound policy for the U.S. to pursue.
Powell stressed Wednesday that a CBDC would need to ensure users’ privacy and protect against money laundering and other illicit activity. A CBDC would need to integrate into the private sector and leverage the private sector’s ability to innovate. He also sees a CBDC as needing to be a widely accessible payment for all transactions that can be transmitted seamlessly.
“This order … will complement the Fed’s ongoing work with CBDC,” Powell said. “It doesn’t focus on any particular aspect, but tries to take a holistic look at the digital financial landscape. That is very welcome.”
