Federal Reserve Vice Chair Lael Brainard has stressed the importance of establishing sound regulation for the crypto financial system “now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.”
Brainard, Fed Vice Chair on Crypto Regulation
Lael brainard, vice-chair of the Board of the Federal Reserve Governors spoke Friday about crypto regulation (defi), at the Bank of England conference.
She began by referencing recent volatility in the crypto market, stating that it “has exposed serious vulnerabilities in the crypto financial system.” She added that both traditional and crypto financial systems are susceptible to leverage, settlement, opacity, maturity, and liquidity transformation risks.
Noting that “Innovation has the potential to make financial services faster, cheaper, and more inclusive and to do so in ways that are native to the digital ecosystem,” Brainard stressed:
Before the crypto system becomes too complex or interconnected to threaten the stability of the wider financial system, it is crucial that sound regulations are in place for the cryptocurrency financial system.
Emphasizing the need for national and international cooperation, the Federal Reserve vice chair opined: “The recent turbulence and losses among retail investors in crypto highlight the urgent need to ensure compliance with existing regulations and to fill any gaps where regulations or enforcement may need to be tailored — for instance, for decentralized protocols and platforms.”
Brainard continued:
The future financial resilience of crypto-based financial systems will increase if the regulatory perimeter reflects the principles of the same risk, the same disclosure and the same regulatory outcome.
The Fed vice chair added that a U.S. central bank digital currency (CBDC) could help financial stability “by providing the neutral trusted settlement layer in the future crypto financial system.”
The U.S. Treasury Department presented a framework to international engagement regarding crypto assets on Thursday to President Joe Biden, as per the March executive order. To regulate digital assets globally, the Treasury strongly emphasized collaboration with allies around the world.
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