The chair of the US Federal Reserve, Jerome Powell, has expressed concern over the cryptocurrency sector. The official stated that private cryptocurrencies and stablecoins presented a risk to the stability of the financial sector.
Fed Chair concerned over crypto use
During a panel hearing at the Bank for International Settlements, Powell noted that a clear regulatory framework for cryptocurrencies was needed. This regulatory framework would help protect the economy from the rising adoption of cryptocurrencies.
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Our existing regulatory frameworks were not built with a digital world in mind. Stablecoins, central bank digital currencies, and digital finance more generally will require changes to existing law and regulation or even entirely new rules and frameworks.
Powell added that there was concern over the effects of some digital asset products on financial stability. He noted that no historical data showed how some of these products will react in case of market recession.
The official also talked about the use of cryptocurrencies in money laundering and other illegal activities. According to him, governments needed to work together to ensure that digital assets were highly monitored. Moreover, governments needed to support financial products that derived value for investors.
This is not the first time that Powell is criticizing the crypto space. in January, he noted that the financial risks from the use of stablecoins were “a very high priority.” Stablecoins are private cryptocurrencies whose value is pegged to another stable asset such as fiat currency. Stablecoins tend to have stable values compared to other cryptocurrencies.
Federal Reserve on launching a CBDC
Last year, the Federal Reserve noted that it would take its time before launching a digital dollar. The institution noted that the US would not compete with countries like China that are already steps ahead in launching their CBDCs. Powell added that the US needed to reduce the possibility of making any mistakes when launching a CBDC.
The US president, Joe Biden, recently signed an executive order on digital currencies. The order instructed federal agencies to work together to regulate the cryptocurrency market. It also mentioned the assessment of the feasibility of a digital dollar on the US economy.
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