Fed urges to prevent uncontrolled integration of cryptocurrencies into the financial system

Lael Brainard advocated international cooperation between financial regulators to combat the cross-border reach of the crypto industry

09.07.2022 - 07:30

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What’s new? US Federal Reserve (Fed) Vice Chair Lael Brainard has called for stronger regulation before cryptocurrencies are integrated into the financial system. In her view, digital assets have the same basic risks as traditional finance and need “strong guardrails.” As an example, Brainard pointed to the recent downturn in the crypto market. At a Bank of England conference on July 8, the official called for international cooperation between financial regulators to combat the cross-border reach of the crypto industry.

Lael Brainard’s speech

What else did Brainard have to say? Two specific areas caused particular concern to the official. The first is the involvement of banks with cryptocurrencies, Brainard noted that this increases the risk of the stability of the core financial system. In this, she believes that the initiative should be encouraged as it “provides an interface where regulators have strong sightlines.” According to Brainard, a “strong regulatory framework for crypto finance” is necessary to ensure active bank involvement.

Stablecoins are the second area of risk diffusion, according to Brainard. She called them a bridge between cryptocurrencies and fiat and noted that the two largest stablecoins account for 80% of the market capitalization. According to her, stablecoins backed by fiat are “highly vulnerable to runs.”

Earlier, Fed chief Jerome Powell said that the agency was keeping a close eye on the situation in the cryptocurrency market amid high volatility in digital asset rates. In his view, cryptocurrencies do not have a strong impact on the country’s macroeconomy, but this area needs the introduction of a clearer regulatory framework.

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