Fed Vice Chair Calls for “Urgent” Crypto Regulation Following Market Collapse

Lael Brainard – Vice Chairwoman of the Federal Reserve – said the latest crypto market bloodbath “highlights the urgent need” for industry regulation. She claims it must begin to comply with existing financial regulations, mirroring the views of the Securities and Exchange Commission (SEC). 

Ensuring Financial Stability

Brainard made her comments during a speech at the Bank of England Conference in London on Friday. 

“Future financial resilience will be greatly enhanced if we ensure the regulatory perimeter encompasses the crypto financial system and reflects the principle of same risk, same disclosure, same regulatory outcome,” she said.

Fed's Lael Brainard pushes digital dollar as central bank currency race heats up
Lael Brainard. Source: CNBC

Highlighting the volatility of cryptocurrencies, the chairwoman cast doubt on the characterization of assets like Bitcoin as hedges to inflation. Instead, the asset class has entered crypto winter despite record CPI increases this year, showing strong correlations with riskier equities. 

Indeed, crypto has collapsed alongside the equities market as the Fed continues pursuing a tighter monetary policy. This has caused many overleveraged funds and lending/ exchange platforms to face liquidity issues, putting consumer funds at risk. 

That said, she still believes in the promise of blockchain technology to enhance the efficiency of the financial system. Therefore, regulators ought to work fast to bring proper regulation to the space.

“Far from stifling innovation, strong regulatory guardrails will help enable investors and developers to build a resilient digital-native financial infrastructure,” she added.

Such regulation is already on the way, with bi-partisan legislation unveiled in June to provide an overarching framework for classifying digital assets. While addressing assets like Bitcoin and NFTs, it provided little commentary on central bank digital currency (CBDC).

Is a CBDC Necessary?

The chairwoman published a report in May preaching the potential benefits a CBDC could provide to the United States. While she claimed that it could provide a “safe-central bank liability in the digital financial ecosystem,” Republicans opposed the idea.

She echoed this idea on Friday, arguing that it could help ensure future financial stability. “A digital native form of safe central bank money could enhance stability by providing the neutral trusted settlement layer in the future crypto financial system,” she added.

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The White House also called for “urgent” CBDC research and development in his crypto executive order in March. For now, however, Fed panelists largely agree that developing such technology is not a top priority.

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