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Fed’s Powell calls for more regulation of stablecoins

WASHINGTON – Jerome Powell, chairman of the Federal Reserve System, said this on Tuesday stablecoins will require tighter regulation as they become more widely used by consumers.

In a virtual speech at a digital finance conference in Paris, Powell also said the Fed has yet to make a decision on whether to move to a digital dollar.

Fed a sharp increase in the interest rate this year, Powell said, contributed to the collapse of some stablecoins and the large drop in the value of cryptocurrencies, a phenomenon that dubbed “crypto winter” by traders. Stablecoins are digital tokens pegged to the value of traditional financial instruments, often the dollar. In May, the TerraUSD stablecoin collapsed, wiping out $40 billion in investor funds.

Powell said the higher interest rates exposed “significant structural problems” that exist in decentralized finance, a broad term that covers stablecoins, cryptocurrencies and other emerging technologies.

Still, crypto-winter has had little impact on traditional finance because there isn’t much overlap between the two at the moment, Powell said. But it may not last.

“There is a real need for more appropriate regulation,” Powell said, as decentralized finance “starts to touch more and more retail customers.”

Earlier this month, in an interview with the Cato Institute, Powell said that anything issued for money should be heavily regulated.

“If people are going to think something is money, then it has to actually have the qualities of money,” Powell said. “If that doesn’t happen, then I don’t think you want to take money and make it another consumer product where sometimes it doesn’t work and sometimes it does well.”

Powell also outlined a cautious path for the United States to create a so-called digital central bank currency, or digital dollar. Digital currencies differ from today’s forms of electronic money because they will be issued by central banks such as the Fed, rather than a bank.

More than 100 central banks around the world are considering the possibility of introducing a digital currency, but only a few have issued one.

Powell said the Fed is “evaluating both the political and technological issues” surrounding the digital dollar.

“We haven’t decided to continue, and we don’t see ourselves making that decision for some time,” he said. “We see this as a process that will last at least a couple of years as we work and build confidence in our analysis and our final conclusions.”

This would put the US behind many other countries when it comes to central bank digital currency. China has already tested the digital yuan in some provinces.

Powell also said the Fed would need approval from the White House and Congress to proceed with the digital dollar.

Christine Lagarde, president of the European Central Bank, also gave a virtual speech at the conference and said the ECB plans to decide within the year whether to start developing a prototype digital euro.

Central banks provide key support for currencies, making them much more stable than private money, Lagarde said.

“If we’re not in this game, if we’re not in the experiment, the innovation in terms of central bank digital money, we risk losing the anchor role that we’ve played for many, many decades,” she said.

Earlier this month, the Ministry of Finance issued a report recommending The US is working on developing a digital dollar.

Also this month, Michael Barr, the Fed’s chief financial regulator, said the central bank should work with other agencies and Congress to tighten oversight of stablecoins.

“Stablecoins, like other unregulated private money, can pose risks to financial stability,” Barr said. “History shows that in the absence of proper regulation, private money is subject to destabilizing leakages, financial instability, and the potential for widespread economic damage.”

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, copied or distributed without permission.

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Fed’s Powell calls for more regulation of stablecoins

WASHINGTON – Jerome Powell, chairman of the Federal Reserve System, said this on Tuesday stablecoins will require tighter regulation as they become more widely used by consumers.

In a virtual speech at a digital finance conference in Paris, Powell also said the Fed has yet to make a decision on whether to move to a digital dollar.

Fed a sharp increase in the interest rate this year, Powell said, contributed to the collapse of some stablecoins and the large drop in the value of cryptocurrencies, a phenomenon that dubbed “crypto winter” by traders. Stablecoins are digital tokens pegged to the value of traditional financial instruments, often the dollar. In May, the TerraUSD stablecoin collapsed, wiping out $40 billion in investor funds.

Powell said the higher interest rates exposed “significant structural problems” that exist in decentralized finance, a broad term that covers stablecoins, cryptocurrencies and other emerging technologies.

Still, crypto-winter has had little impact on traditional finance because there isn’t much overlap between the two at the moment, Powell said. But it may not last.

“There is a real need for more appropriate regulation,” Powell said, as decentralized finance “starts to touch more and more retail customers.”

Earlier this month, in an interview with the Cato Institute, Powell said that anything issued for money should be heavily regulated.

“If people are going to think something is money, then it has to actually have the qualities of money,” Powell said. “If that doesn’t happen, then I don’t think you want to take money and make it another consumer product where sometimes it doesn’t work and sometimes it does well.”

Powell also outlined a cautious path for the United States to create a so-called digital central bank currency, or digital dollar. Digital currencies differ from today’s forms of electronic money because they will be issued by central banks such as the Fed, rather than a bank.

More than 100 central banks around the world are considering the possibility of introducing a digital currency, but only a few have issued one.

Powell said the Fed is “evaluating both the political and technological issues” surrounding the digital dollar.

“We haven’t decided to continue, and we don’t see ourselves making that decision for some time,” he said. “We see this as a process that will last at least a couple of years as we work and build confidence in our analysis and our final conclusions.”

This would put the US behind many other countries when it comes to central bank digital currency. China has already tested the digital yuan in some provinces.

Powell also said the Fed would need approval from the White House and Congress to proceed with the digital dollar.

Christine Lagarde, president of the European Central Bank, also gave a virtual speech at the conference and said the ECB plans to decide within the year whether to start developing a prototype digital euro.

Central banks provide key support for currencies, making them much more stable than private money, Lagarde said.

“If we’re not in this game, if we’re not in the experiment, the innovation in terms of central bank digital money, we risk losing the anchor role that we’ve played for many, many decades,” she said.

Earlier this month, the Ministry of Finance issued a report recommending The US is working on developing a digital dollar.

Also this month, Michael Barr, the Fed’s chief financial regulator, said the central bank should work with other agencies and Congress to tighten oversight of stablecoins.

“Stablecoins, like other unregulated private money, can pose risks to financial stability,” Barr said. “History shows that in the absence of proper regulation, private money is subject to destabilizing leakages, financial instability, and the potential for widespread economic damage.”

Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, copied or distributed without permission.

Reported by Source link

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