Fed’s Brainard calls for quick action on cryptocurrency regulation


The cryptocurrency world needs strong regulation to start building now before it becomes so pervasive that it poses financial stability risks, the Vice Chairman of the Reserve said on Friday. Federal, Lael Brainard.

“It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it could pose risks to the stability of the broader financial system,” he said. Brainard said in prepared remarks to a bank. England Conference in London.

In a full-throated speech, Brainard argued that failure to do so would pile up problems for the future and said that until there are strong safeguards for crypto-finance, the involvement banks could further bolster a “riskier, less compliant ecosystem”.

The risks of loosely regulated cryptocurrencies and stablecoins, which have skyrocketed in value during the COVID-19 pandemic, have been highlighted with the sharp drop in the crypto market and the fall of the leading “stablecoin” terraUSD. Major cryptocurrency Bitcoin has fallen more than 75% from its all-time high in the past seven months.

Brainard noted that cryptocurrencies are highly vulnerable to deleveraging, fire selling and contagion and argued that new technologies and financial engineering alone cannot turn risky assets into safe ones.

National and international cooperation would be needed, Brainard said, to ensure compliance with existing regulations and adapt new ones, especially in the area of ​​decentralized protocols and platforms.

“Future financial resilience will be greatly enhanced if we ensure that the regulatory perimeter encompasses the crypto financial system and reflects the principle of same risk, same disclosure, same regulatory outcome,” Brainard said.

She added that a US central bank digital currency, for which she has expressed her support, could contribute to financial stability “by providing the neutral trust settlement layer in the future crypto financial system.”