Fed Vice Chairman Brainard calls for crypto-regulation and notes on stablecoin risks

Fed Vice Chairman Brainard calls for crypto-regulation and notes on stablecoin risks

Federal Reserve Vice Chairman Lyle Brainard said that the cryptocurrency market carries risks similar to traditional finance, but that it will need new regulations for cases not covered by existing laws.

“We have seen that the cryptocurrency financial system has the same risks that we know very well from traditional finance,” she said in a speech at the annual Clearing House and Bank Policy Institute 2022 conference on Wednesday. But given the unique characteristics of cryptocurrencies, there is a need to “create clear regulatory safeguards.”

Brainard is leading the central bank’s exploration of the digital US dollar, and her role as the number two at the Federal Reserve makes her opinions on cryptocurrency highly relevant. Brainard’s latest comments echoed Previous data That the sector needs to meet the same safety standards as conventional finance in order to prevent it from becoming a threat to the broader financial system.

The Fed Vice Chair also reiterated the risks of stablecoins in her speech. She predicted that there would be a lot of these tokens created by the private sector in the future, which calls into question whether the central bank should issue its own central bank digital currency (CBDC).

“Stablecoins are one of those areas that I think have the greatest potential for risk if not properly regulated and of course these risks can easily seep into the underlying financial system due to the operable nature of stablecoins,” she said.

In May, about $60 billion in value evaporated almost overnight after the collapse of the algorithmic stablecoin TerraUSD (UST). while, some anxiety Asset-backed stablecoins like USDT or USDC may not be able to maintain large amounts of withdrawals.

In November 2021, a committee known as the President’s Working Group on Financial Markets — whose members include the likes of Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen — Issuing stablecoin recommendations. Brainard described her report as “very robust” and said she agreed with her recommendations that stablecoins should be subject to bank-like regulations, and that “credit protection barriers and liquidity support are the best way to locate stablecoins.”

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