Federal Reserve Chairman Jerome Powell stated Wednesday that technology transformation in financial services is on the horizon and new regulations will be needed.
Powell gave some insights into the US’s market governance during an appearance at the Bank of International Settlements Innovation Summit. The presentation was on central bank digital currency.
According to the Fed official, digital technology was not considered when creating our regulatory systems.
“There will be revisions to current laws and regulations, as well as the creation of wholly new rules and structure, if central banks, stablecoins, and digital currencies are to be implemented,” he said during a roundtable discussion on CBDCs at the BISI Summit.
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Powell stated that the emerging digital currencies, such as stablecoins or cryptocurrencies, are a danger to the US banking system. Therefore, it is necessary for additional consumer protection measures.
Powell reaffirmed his position that cryptocurrency should adhere to the “same activity, same regulation” premise.
He suggested that banks and stablecoin-issuers should be licensed in October 2021.
“Stablecoins function similarly to money market funds. They’re similar to bank deposits… and it is reasonable for them to be controlled similarly, same activity, same regulation,” he concluded.
Powell: DeFi Could Improve the Finance Sector
Despite this, the Fed chairman acknowledged that distributed technology and DeFi have the potential to improve the payment system’s efficiency and foster a more competitive financial sector.
This is an impressive recognition from the director of one of the country’s premier financial institutions. Others agencies have also adopted crypto and blockchain technology, although they appear all to support some regulation.
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A stablecoin is a cryptocurrency type that can be backed either by the dollar, or another commodity like precious metal.
CBDCs represent digital versions of dollars or fiat currency that government issue. While the Fed already has exdigital currency, they have not decided whether to make them. It published in January a study about stablecoins.
Biden’s Executive Order
The US President Joe Biden issued an executive order this month, directing the Treasury Department to study the effects of cryptocurrency on national security and economic stability.
Biden’s directive comes as many Democratic legislators, notably Massachusetts’ Elizabeth Warren, have expressed worry that cryptocurrency could be used to circumvent US sanctions against Russia.
In accordance with their executive mandate, Treasury will lead a report about a CBDC, along with the Departments of Justice, Commerce, and State, and as well as the Office of Management and Budget, Homeland Security, and as Director of National Intelligence, on whether the US should pursue digital dollars.
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