The Chairman of the Federal Reserve says he favors responsible innovation in the world of crypto assets.
In a new video speech given at an international crypto conference, Fed Chair Jerome Powell details his views on various sectors of the crypto industry, including stablecoins, central bank digital currencies (CBDCs), and decentralized finance (DeFi).
According to Powell, DeFi has “significant structural issues” that can be solved by proper regulations.
“Within the DeFi ecosystem, there are these very significant structural issues around a lack of transparency.
The good news, I suppose, is that from a financial stability standpoint, the interaction between the DeFi ecosystem and the traditional banking system and the traditional financial system is not that large at this point. So we were able to witness the DeFi winter and it didn’t have significant effects on the banking system and broader financial stability and that’s a good thing.
I think it demonstrates the weaknesses and work that needs to be done around regulation, carefully and thoughtfully.”
Powell then says that the Fed has a history of working alongside the private sector to foster “responsible innovation” that brings higher efficiency and lower costs to consumers.
“We do favor responsible innovation, including in crypto-related services or products. I think back to the times when checks became obsolete in a lot of ways and we were very much in the middle of fostering that transition. The Fed is also roughly a year away from rolling out FedNow, which is an instant payments system that will make real-time payments available to the public through their banks.
The whole point of regulations of course is to create a level playing field that will allow us to reap the benefits of true innovation while avoiding the pitfalls of regulatory evasion.”
Powell then looks towards stablecoins, saying that an appropriate regulatory structure needs to be put in place as stablecoin issuers are focused on getting the dollar-pegged crypto assets into the mainstream.
“On stablecoins in particular, most of the usage of stablecoins now is on the crypto platforms. In effect, stablecoins are a money-like asset that is used to settle transactions on DeFi platforms. But many stablecoin issuers are talking about it, and there’s a great deal of interest everywhere, among potential stablecoin issuers to reach the general public more broadly, including retail payments.
That’s really what our main focus from a regulatory standpoint is. Should stablecoins be used in that way? Much more broadly, much more public facing, away from the crypto platforms? What’s the appropriate regulatory structure?
And we have a group of US regulatory agencies under the leadership of the Treasury Department put together an analysis and a proposal and we encourage Congress to pass legislation that is needed for stablecoins.”
Powell then goes on to say that the Fed has yet to decide if it’s going to issue a CDBC and also notes that they would need approval from both Congress and the President to do so.
“We’re motivated [to] look very carefully at the costs and benefits of issuing a central bank digital currency here in the United States…
We’re looking at it very carefully, we’re evaluating both the policy issues and the technology issues, and we’re doing that with a very broad scope. We have not decided to proceed and we don’t see ourselves making that decision for some time.”
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