Fed Chair Jerome Powell Calls for Crypto Regulation, Cautions Against Potential Financial Instability

US Federal Reserve chairman Jerome Powell has asserted that the cryptocurrency industry needs a new regulatory framework, arguing that it poses a threat to the US financial system and could undermine the nation’s financial institutions.

The Fed chair aired his concerns on the cryptocurrency industry yesterday at a panel discussion on digital currencies hosted by the Bank for International Settlements (BIS). Powell noted:

“Our existing regulatory frameworks were not built with a digital world in mind … Stablecoins, central bank digital currencies, and digital finance more generally, will require changes to existing laws and regulation or even entirely new rules and frameworks.”

The chairman also reasserted his opinion that cryptocurrency should follow the “same activity, same regulation” principle. Powell has always had reservations about the crypto industry. In October 2021, he suggested regulating stablecoin issuers like banks, noting: “Stablecoins are like money market funds. They’re like bank deposits… and it’s appropriate that they be regulated, same activity, same regulation.”

Powell also noted that “It’s highly likely that digital financial activities that are currently outside the regulatory perimeter” could get regulated, “which is necessary to level the playing field, keep the trust of users, protect consumers and all that.”

Jerome Powell Also Sees the Good in Crypto

That said, Powell acknowledged the many benefits of cryptocurrency, especially that they make electronic payments more efficient. However, he added the caveat that in their current unregulated form, cryptocurrency posed a risk to the financial stability of the US.

Furthermore, the Fed executive gave the all familiar trope that crypto assets “have been used to facilitate illicit activity,” like money laundering. Powell argued:

“We need to prevent this so that the innovations that do survive and do attract broad adoption are those that provide value over time.”

Finally, he cautioned that citizens of the US who purchased cryptocurrencies “may not fully understand the extent of their potential losses, or that these investments generally lack the government protections that accompany many of the traditional financial instruments and services that they’re used to.”