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Turmoil in the cryptocurrency industry
Federal Reserve Chairman Jerome Powell testified before the Senate Banking, Housing and Urban Affairs Committee on Wednesday. Banks should be cautious about getting involved, he said, because “we see a lot of turmoil” in the crypto space.
Asked how the Fed evaluates cryptocurrency-related activity, Powell said, “We’re seeing a huge amount of disruption, like fraud, lack of transparency, and run risk.” answered.
As such, the Fed is asking financial institutions it supervises and regulates to be “very careful and careful in how they interact with the entire crypto space,” he said.
On the other hand, he said he would like to avoid stifling innovation because it is so important for the economy as a whole.
We do not want regulation to stifle innovation in ways that only favor incumbents.
In January of this year, the Federal Reserve issued a joint statement with the U.S. Office of the Comptroller of the Currency (OCC) and the U.S. Federal Deposit Insurance Corporation (FDIC). The statement warns of the various risks posed to banks, citing “significant fluctuations and exposed vulnerabilities” in the crypto space in 2022.
Based on these risks, U.S. regulators have recognized that “the issuance or holding of cryptocurrencies is highly likely to contradict safe and sound banking operations,” and have “restricted banks’ exposure to cryptocurrencies.” We will monitor it carefully,” he said.
connection:Fed and others warn of risks cryptocurrencies pose to banks
Same activity, same regulation
Addressing concerns about areas of unregulated territory, Powell argued that the “same activity, same regulation” principle should apply to cryptocurrency-related activities, addressing the issue of stablecoins. rice field.
When people deal with what appears to be a money market fund, they will assume that it is subject to the same regulations as money market funds and bank deposits. In that sense, we should be careful with stablecoins.
Cynthia Lumis, a supporter of cryptocurrency legislation, then asked about the risks associated with stablecoins suggested in the aforementioned joint statement. “It is highly unlikely that a bank issuing stablecoins on an open, public or decentralized blockchain would be consistent with sound banking practices,” Lumis said in a statement. She therefore asked if stablecoins issued in the above manner could not be used in banking.
In this regard, Powell acknowledged that there are concerns about fraud and money laundering when it comes to permissionless public blockchains, which are incompatible with “sound banking.”
But when Lumis asked again what about a properly regulated stablecoin, Powell suggested it was acceptable.
In an appropriate regulatory environment that adheres to the principle of “same activity, same regulation”, where stablecoins are subject to the same regulation as equivalent products, stablecoins may be allowed to exist in our financial system. be.
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