The movement to regulate cryptocurrencies and stablecoins may intensify. Federal Reserve Chair Jerome Powell stated at a conference on digital finance in Paris that stablecoins will require more regulation as consumers use them more widely.
Yet another indication that the digital currency and blockchain industries are entering a new regulated era in which anonymity, crime, and a laissez-faire approach to monetary rules will not be tolerated.
Stablecoins are digital currencies pegged to the value of a fiat currency, typically the US dollar. In May 2022, the stablecoin TerraUSD reportedly collapsed, wiping approximately $40 billion in investor funds. Powell stated that the Federal Reserve has yet to decide whether to proceed with the implementation of a digital dollar.
Powell’s remarks come just a week after the International Monetary Fund called for a globally coordinated strategy to regulate digital currencies. It’s unmistakable proof that the Wild West era of digital currencies is over. Only blockchains that embrace regulatory compliance and provide actual utility will survive and thrive in the future.
According to Powell at the conference, the crypto winter, defined by a drop in the value of cryptocurrencies and some stablecoins, was caused by the Fed’s sharp interest rate hikes. Furthermore, higher interest rates have demonstrated that decentralized finance, including stablecoins and cryptocurrencies, has “significant structural issues,” he added.
Crypto winter has made regulators skeptic
Because there is little overlap between the two, the crypto winter has had little impact on traditional finance. However, things may change in the future, and there may be some overlap as decentralized finance reaches more retail customers. Powell agreed, saying, “There’s a real need for more appropriate regulation.”
“If people are going to think something is money, then it needs actually to have the qualities of money.” However, “If it doesn’t, then I don’t think you want to take the money and make it into just another consumer product where sometimes it fails and sometimes it’s good,” Powell said.
Powell stated that the Fed is “evaluating both the policy and technology issues” surrounding a digital USD. Approximately 100 central banks have considered a digital currency from various countries. However, a few people have persisted with the plan.
Asia and Africa are the first to adopt digital currencies
China, among other Asian countries, has experimented with digital yuan in some provinces, and Nigeria has already launched a CBDC. Before proceeding with a digital USD, the Fed would require approval from the White House and Congress.
According to Christine Lagarde, President of the European Central Bank, the currency backed by Central Banks is more stable than private money. “We risk losing the role of anchor that we have played for many, many decades if we are not in that game if we are not involved in experimenting and innovating in digital central bank money.”
She stated at the conference that the ECB is considering developing a prototype of a digital euro.
Michael Barr, the Fed’s top financial regulator, previously stated that the central bank, in collaboration with other agencies and Congress, should strengthen oversight of stablecoins because “stablecoins, like other unregulated private money, could pose financial stability risks.” He emphasized that “in the absence of appropriate regulation, private money is subject to destabilizing runs, financial instability, and the potential for widespread economic harm,” citing history.
