Fed boss Jerome Powell said the existing laws and framework doesn’t suit digital currencies and stablecoins. The Chair said the only way for virtual currencies and stablecoins to thrive without issues is if existing laws and regulations are changed and updated.
Speaking at the Bank for International Settlements Innovation event, Powell said not only do digital assets need new rules. The advent of its underlying technology will also require new rules and laws to deal with the rapidly evolving changes.
The World is Undergoing Technological Evolution
When asked about the nature of blockchain in the current sphere, Powell said the world, especially finance is in a rapid technological change. However, he shared his skepticism about the behavior of digital currencies in times of distress.
Powell also noted that regulators would need to step up to address the pitfalls of crypto. Powell identified the pitfalls of cryptocurrencies, such as being used to finance terrorism, evade tax and sanctions, and facilitate illicit transactions.
Fed Chair Gives an Update on Digital Dollar
Creating a digital Dollar has been a topic of discussion amongst financial regulators and the Fed Reserve for the last two years. The topic has gained momentum ever since its counterparts from the East, China, launched its digital Yuan.
Questions are been raised on the potential and risks of developing a U.S. CBDC. In recent times, the United States has explained that it wouldn’t rush into creating a CBDC, as its regulators would need to carry out a proper assessment first.
Powell said that for a United States CBDC to be created, it would need to satisfy four requirements – protect user’s privacy, be able to verify identity to mitigate the issues of money laundering and other illegal activities, be intermediated, and become an accessible means of transacting businesses. Only this would guarantee the development of the digital Dollar.
In one of his addresses, Powell pinpointed the role of central banks in virtual currency and blockchain, adding that they would need to evolve with other financial systems to properly regulate these nascent assets to foster technological growth. Blockchain has been identified as a potential growth facilitator. Any country that leverages it would be at an advantage and witness the massive transformation.
Currently, the Fed is looking for people with expertise in blockchain and digital currencies to research the decentralized space. The Fed is also partnering with various central banks through BIS to help with the research on decentralized finance.
The executive order on cryptocurrency to be signed by President Biden will look at x-raying the risks and potential of CBDC and help financial regulators set up a working regulatory framework that will accelerate innovation and mitigate the risks of transacting in crypto.