A top Federal Reserve official is calling for additional regulations on cryptocurrency weeks after the market saw a historic drop in value.
Fed Vice Chairwoman Lael Brainard stated during an appearance at the Bank of England Conference in London that she wants to see increased regulations in the crypto industry after the recent market collapse among some of the largest stablecoins — that is, tokens whose value is tied to some reference point, such as a currency or a financial instrument.
“This is the right time to establish which crypto activities are permissible for regulated entities and under what constraints so that spillovers to the core financial system remain well contained,” Brainard told the conference audience.
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She also noted that the Fed was watching the market in light of the recent losses. “We are closely monitoring recent events where risks in the system have crystallized, and many crypto investors have suffered losses. Despite significant investor losses, the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk.”
Brainard explicitly pointed to the crash of Bitcoin, an event that led to the digital asset losing 68.5% of its value from its November 2021 all-time high. She also noted the effects of Terra, a blockchain network whose collapse left the entire cryptocurrency industry reeling.
The vice chairwoman offered a few suggestions for what regulations to incorporate. She encouraged regulators to implement proper “guardrails” so that investors can build a “resilient digital-native financial infrastructure” that will not collapse as easily as before and establish “genuine economic value.” This included ensuring users are protected against exploitation and market manipulation, addressing noncompliance among the market’s main users, and complying with the laws designed to combat money laundering, the financing of terrorism, and the evasion of economic sanctions. Brainard also called for regulators to address gaps created by newer developments in the crypto market.
Her remarks resemble notions offered by the Bank of England this week. The U.K. bank noted in its financial stability report on Tuesday that “cryptoasset valuations have fallen sharply” and advocated stricter laws to protect the broader financial system.
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The Treasury Department released a new “framework” on Thursday that lays out how it will work with foreign regulators to address and manage the cryptocurrency sector. This includes reducing the use of crypto for illicit finance, promoting access to financial services, supporting technological development, and “reinforc[ing] U.S. leadership in the global financial system.” The fact sheet also encouraged the United States to pursue the “adoption and implementation of international standards through bilateral and regional engagements.”
