US Federal Reserve Chair Jerome Powell has called for more regulation of stablecoins as their adoption and commercial use grows among US consumers.
Powell’s comments came Tuesday during a virtual conference on digital finance in Paris, the AP reported.
The financial regulator acknowledged that the Fed’s interest rate hikes this year contributed to the crypto winter, characterized by the collapse of the Terra ecosystem, the bankruptcy of DeFi companies, and the monumental drop in the price of cryptocurrencies.
He pointed out that the sharp increases in interest rates exposed “significant structural problems” with so-called decentralized finance, which include cryptocurrencies, stablecoins, and other innovative technologies.
He also mentioned that the collapse of the crypto market had a reduced impact on the traditional financial system because the interrelation of the two systems has been low until now. However, he said that this situation may not continue.
The Fed chair supports responsible innovation in digital assets but believes the time is now to regulate them more broadly.
"There’s a real need for more appropriate regulation," as decentralized finance "starts to touch more and more retail customers," Powell said.
In an interview at the Cato Institute in early September, Powell said that anything that purports to become money must be strictly regulated and have the “qualities of money.”
Decision on the Digital Dollar Could Take Years
During the conference, Powell referred to the digital dollar project currently under study. He indicated that so far the Fed has not decided on its issuance, despite the fact that the White House recently issued a new directive to analyze its benefits and risks.
"We have not decided to proceed and we don’t see ourselves as making that decision for some time," he said. Powell believes that this will still take some time while the desirability of a central bank digital currency (CBDC) is analyzed and some final conclusions are reached.
Instead, his colleague from the European Central Bank, Christine Lagarde, who also participated in the virtual conference, said that the ECB plans to make the decision on the development of a digital euro prototype in about a year.
In the regulator’s opinion, stablecoins, as well as other private funds not yet regulated, which “could pose risks to financial stability.” He said that historically the lack of adequate regulation of private money has generated “destabilizing runs” and “financial instability.”
Cryptocurrency regulation in the US is now closer with regulatory agencies and lawmakers working on an overall crypto industry regulatory framework.
