Fed Chair Jerome Powell Urges Banks to Exercise Careful Consideration in Dealing with Cryptocurrencies
The world of cryptocurrency is in a state of confusion, according to Jerome Powell, the chairman of the US Federal Reserve (Fed). During a hearing before the Senate Banking, Housing, and Urban Affairs Committee on March 7th, Powell advised caution among banks in dealing with the realm of virtual assets.
When asked about how the Fed evaluates cryptocurrency-related activities, Powell answered, “We see a lot of confusion, such as fraud, lack of transparency, and mounting risks.” As a result, he urged financial institutions supervised and regulated by the Fed to “be cautious and pay close attention to how they interact with all virtual currency spaces.”
However, Powell did recognize that innovation is critical for the economy as a whole, and therefore, he expressed a desire to avoid inhibiting it. He stated that they do not wish to stifle innovation in ways that would only benefit existing companies through regulations.
In January of this year, the Fed issued a joint statement with the US Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation, urging banks to be aware of various risks associated with the volatile and fragile nature of the cryptocurrency field in 2022.
US regulatory authorities are aware of these risks and believe that “issuing or holding virtual currencies is highly likely to conflict with safe and sound banking practices.” Therefore, they concluded that they will “closely monitor banks’ virtual currency-related exposures.”
When asked about concerns regarding areas where regulations do not apply, Powell emphasized the principle of “same activity, same regulation,” which he believed should be applied to virtual currency-related activities, and discussed the issues with stablecoins.
People will assume that when they deal with something that appears to be a money market fund, it is subject to the same regulations as money market funds or bank deposits. Therefore, we should be cautious about stablecoins.
Later, Cynthia Lummis, a pro-cryptocurrency law supporter, questioned Powell about the risks associated with stablecoins suggested in the aforementioned joint statement. Lummis pointed out that the statement states, “bank issuance of stablecoins on open, public, or decentralized blockchains is likely to be inconsistent with safe and sound banking practices.” She asked whether stablecoins issued in the manner mentioned above could be used in banking.
Regarding this point, Powell stated that regarding permissionless public blockchains, he saw the potential for fraud or money laundering. However, he did not give a direct answer to Lummis’s question.
In conclusion, the chairman of the Fed’s warning to banks about the confusion and risk of cryptocurrency-related activities indicates that the regulatory environment is likely to become stricter, particularly in the realm of stablecoins. However, it remains to be seen how financial institutions will respond to these warnings and how this will affect the cryptocurrency market as a whole.
- Man Spends $2.5 Million To Retrieve Lost Hard Drive With 7,500 BTC, But Loses Out To Bitcoin Cash
- Fed Chair Powell Signalled Interest Rates Could End Up Being Higher Than Expected, Sending Bitcoin Price Lower