The chairman of the US Federal Reserve, Jerome Powell, claims that the crypto market needs new rules. Jerome Powell indicated that the existing regulatory framework does not take into account the innovations of the market.
New crypto rules
Powell spoke at the conference of the Bank of International Settlements†Among other things, he spoke about central bank digital currencies (CBDCs). at the conference offered he insight into how the United States could regulate the crypto market.
Powell said that the crypto market and associated technologies can have positive effects, but that new rules need to be put in place to do so.
Also, Powell said that distributed technology and decentralized finance (DeFi) have the potential to improve the efficiency of the payment system. This is a very positive statement from the head of one of the best financial agencies in the country. Other agencies and their officials have also moved to crypto and blockchain.
The chairman did say, however, that the new products offered by the market could entail risks.
“There are also many concerns about the financial stability of some products. We don’t know how some digital products will behave in times of market stress, which could lead to major destabilizing flows. In addition, we do not know whether the stress in the crypto markets can spill over into the traditional financial system.”
Another important point relates to stablecoins, which are mentioned time and again by the US authorities. They want to process these via the new rules in the American banking system.
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International cooperation is central
Meanwhile, the United States is looking into launching its own digital dollar, but this is still in the preparatory phase. Powell said the Fed has yet to make an official decision. A dollar-based digital currency was part of the executive order signed by President Biden, which was the first major step the government took to fully regulate crypto.
As mentioned earlier, Powell said international cooperation on crypto and CBDCs is necessary. Stablecoins are seen as a threat to national currencies and many governments want to impose controls.
Powell outlined four main factors behind a dollar-based CBDC, namely user privacy, “verifiable identity”, “mediatable” and accessibility. However, even a proof-of-concept is still a long way off, so much remains to be done in the regulatory context.