Federal Reserve Chairman Jerome Powell emphasized on Wednesday that technological transformation in the financial sector is indispensable and that new regulations will be needed.
Powell revealed some insight into how the United States would run the market during a presentation at the Bank of International Settlements Innovation Summit on central bank digital currencies.
The digital age has not been taken into account in setting up our current regulatory structures, the Fed official said.
“There will be revisions to current laws and regulations, as well as creating entirely new rules and structure, if central banks, stablecoins and digital currencies are to be implemented,” he said during a roundtable on CBDCs at the BISI summit.
Is there a threat?
Powell noted that emerging forms of digital money, such as cryptocurrencies and stablecoins, pose a threat to the US financial system and that additional consumer protection measures will be needed.
Powell reaffirmed his stance that cryptocurrency should adhere to the premise of “same activity, same regulation”.
He proposed in October 2021 to regulate stablecoin issuers, such as banks.
“Stablecoins work in the same way as money market funds. They are similar to bank deposits … and it is reasonable that they are controlled in the same way, same activity, same regulation,” he concluded.
Powell Says DeFi Can Improve Financial Sector
Despite this, the Fed chairman acknowledged that distributed technology and DeFi have the potential to improve the efficiency of the payment system and promote a more competitive financial sector.
This is an impressive recognition from the director of one of the country’s leading financial institutions. Other agencies and their staff have also embraced crypto and blockchain technology, although they all seem to advocate some level of regulation.
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Stablecoins are a type of cryptocurrency typically backed by the dollar or a commodity such as precious metal.
CBDCs are digital representations of dollars or other fiat currencies issued by governments. The Fed is exdigital currency, but has not yet decided whether they will issue it. In January, it published a study on stablecoins.
Biden’s Executive Order
US President Joe Biden signed an executive order earlier this month ordering the Treasury Department and other federal agencies to conduct an investigation into the impact of cryptocurrency on economic stability and national security.
Biden’s directive comes as many Democratic lawmakers, most notably Elizabeth Warren of Massachusetts, have expressed concerns that cryptocurrency could be used to evade US sanctions against Russia.
As part of its executive mandate, the Treasury is leading a report on a CBDC in consultation with the Departments of Justice, Commerce and State, as well as the Office of Management and Budget, Homeland Security and the Director of National Intelligence, to determine whether the U.S. has a digital dollars to pursue.
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