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WASHINGTON (AP) — Federal Reserve Chair Jerome Powell He said that new forms of digital money, such as cryptocurrencies and stablecoins, pose risks to the US financial system and will require new rules to protect consumers.
powellSpeaking at a panel held by the Bank for International Settlements, a global body of central bankers, on Wednesday, new technologies will likely make electronic payments cheaper and faster, he said. But they can also destabilize existing financial institutions, he is said.
“Our current regulatory frameworks were not created with a digital world in mind” he is said. “Stable currencies, central bank digital currencies and more generally digital finance will require changes to existing laws and regulations or even entirely new rules and frameworks.”
Stable coins are a type of cryptocurrency, usually tied to the dollar or a commodity such as gold. Central bank digital currencies are digital dollars or other currencies issued by governments. this fed is researching digital dollars but has yet to make a decision on whether to issue one. He published a study on stablecoins in January.
powell He did not give any details on what adjustments might be needed. he is He said they should adhere to the principle of “same activity, same regulation”, that is, transactions outside the traditional banking system should be regulated as they are when conducted by banks.
Earlier this month, President Biden signed an executive order directing the Treasury Department and other federal agencies to examine the impact of cryptocurrency on financial stability and national security.
His order came as several Democratic senators, including Elizabeth Warren of Massachusetts, expressed concerns that crypto could be used to evade US sanctions against Russia.
in his statements, powell summarized the various risks posed by the growth of digital finance, including consumers and the wider financial system.
Americans who buy stablecoins or crypto “may not fully realize the extent of their potential loss, or that these investments lack the government protection that often accompanies many traditional financial instruments and services to which they are accustomed.” powell said.
Surveys show that roughly 16% of adult Americans – or 40 million people – have invested in cryptocurrencies. And 43% of men aged 18-29 have invested their money in cryptocurrency.
this fed He is trying to understand how digital assets like Bitcoin can affect financial markets, especially during dips or market crashes.
“We don’t know how some digital products will behave in times of market stress that could lead to major destabilizing flows, and we don’t know how stresses in crypto markets could potentially spill over into the traditional financial system.” powell said.
One concern with stablecoins is that while many promise to maintain a $1 value, it is not always clear whether stablecoin issuers have enough cash to redeem each stablecoin they issue for $1.
powell He also noted that crypto assets are used for “illegal activities” such as money laundering and that “we need to prevent this so that innovations that survive and are widely adopted are innovations that provide value over time for legal uses.”
powell said fed though it has “long-held support for responsible innovation” he is He added that it is difficult to say which innovations will “have lasting effects and which will be mostly hype.”
“It’s never possible in real time to be sure which is which.” he is said.
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