Fed Powell urges broader regulation of stablecoins – Boston 25 News

WASHINGTON — (AP) — Federal Reserve Chairman Jerome Powell said Tuesday that stablecoins will need increased regulation as consumers use them more widely.

Powell also said in a virtual speech at the Digital Finance Conference in Paris that the Fed has not yet decided whether to continue using a digital dollar.

Powell said the Federal Reserve’s sharp rate hikes this year have caused some stablecoins to crash and cryptocurrencies to plummet in value, a phenomenon some traders have dubbed the “crypto winter.” Stablecoins are digital tokens pegged to the value of a traditional financial instrument, usually the U.S. dollar. In May, stablecoin TerraUSD collapsed, wiping out $40 billion in investor funds.

Powell said the higher interest rates revealed “significant structural problems” in decentralized finance, a broad term that covers stablecoins, cryptocurrencies and other new technologies.

However, Powell said the crypto winter will have little impact on traditional finance as there is currently not much overlap between the two. But this may not continue.

“There is a real need for more appropriate regulation,” Powell said, as decentralized finance “starts to reach more and more retail customers.”

Earlier this month, Powell said in an interview at the Cato Institute that anything that claims to be money should be strictly regulated.

“If people think something is money, it actually needs to have the quality of money,” Powell said. “If it doesn’t, then I don’t think you want to turn money into another consumer product, and sometimes it fails and sometimes it works great.”

Powell also charted a cautious path for the U.S. to create a so-called central bank digital currency, or digital dollar. Digital currencies differ from current forms of electronic money in that they will be issued by central banks such as the Federal Reserve rather than banks.

More than 100 central banks around the world are considering digital currencies, but only a few have actually issued them.

Powell said the Fed is “evaluating policy issues and technical issues” around the digital dollar.

“We haven’t made a decision to go ahead and we don’t think we’re going to make that decision for some time,” he said. “We think it’s a process that will take at least a few years and we’re working hard and building up our analysis. and confidence in the final conclusion.”

This would put the US behind many other countries when it comes to central bank digital currencies. China has already tested a digital yuan in some provinces.

Powell also said the Fed would need approval from the White House and Congress to continue using the digital dollar.

ECB President Christine Lagarde also spoke virtually at the meeting and said the ECB plans to decide within a year whether to start developing a prototype for a digital euro.

Central banks provide key support for currencies, which makes them more stable than private currencies, Lagarde said.

“If we don’t get into this game, if we don’t get into experimentation and innovation, we could lose the anchor role we’ve played for many, many years in terms of digital central bank money,” she said.

Earlier this month, the U.S. Treasury Department released a report recommending that the U.S. work on developing a digital dollar.

Also this month, Michael Barr, the Fed’s top financial regulator, said the central bank should work with other agencies and Congress to strengthen oversight of stablecoins.

“Like other unregulated private money, stablecoins can pose financial stability risks,” Barr said. “History shows that in the absence of proper regulation, private funds are vulnerable to destabilizing runs, financial instability, and the potential for widespread economic damage.”

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