In an environment filled with recurring regulatory FUD, the United States Federal Reserve Chair Jerome Powell has shared a fresh perspective on how the cryptocurrency industry should be monitored and controlled.
Speaking at a press conference to address the recently taken interest rate decision, Powell opined that cryptocurrencies don’t pose a danger to the country’s financial stability as of now. However, he also added that the agency’s focus should definitely be on monitoring cryptocurrencies.
In response to a question by Wall Street Journal Michael Derby, Powell expressed support for the conclusions of a report from the President’s Working Group on Financial Markets which was released last month. Notably, the report stressed the urgent need for stablecoin regulation through appropriate federal oversight reminiscent of banks. Treading along the same lines, the Chair said,
“Stablecoins can certainly be a useful, efficient consumer-serving part of the financial system if they’re properly regulated. Right now, they aren’t. They have the potential to scale, particularly if they were to be associated with one of the very large tech networks that exist.”
He further added,
“You could have a payment network that was immediately systemically important that didn’t have appropriate regulation and protections. The public relies on the government and the Fed in particular to make sure that the payment system is safe and reliable.”
Well, Powell, who has served as the Fed’s Chair since 2018, is all set for his second term in the position after receiving positive backing from President Joe Biden. Both him and his Vice-Chair Lael Brainard are being seen as Fed institutionalists who will be interested in ensuring cryptocurrencies don’t cause financial-stability risks.
While Powell did say that crypto was unlikely to be a financial stability concern for the U.S. at present, he did express his inhibitions about the industry. Thus, claiming that they are speculative assets, “risky” and “not backed by anything.”
Similar concerns were expressed by the Bank of England’s deputy governor Sir Jon Cunliffe recently. He believed a steep fall in crypto prices could have a knock-on effect, essentially wiping out all investments in the industry. He further urged that a “regulatory framework to contain the risks” should be implemented soon before “this becomes a much bigger issue.”
Similarly, International Monetary Fund’s (IMF) chief economist Gita Gopinath recently argued that cryptocurrencies are proving to be a challenge for emerging markets and that strong regulation was needed for the sector, which could prove to be burdensome given their decentralized nature.