The ongoing downturn in cryptocurrency markets is giving global regulators “more time” to identify the weaknesses and work that needs to be done, says Jerome Powell, Chair of the U.S. Federal Reserve.
“Crypto winter did not have a significant effect on the broader banking system and financial stability,” Powell said while addressing global financial leaders and crypto regulation experts in a conference focused on central banks and digital currencies held in Paris.
The overlap between traditional finance and banking systems and decentralized finance (DeFi) is limited, which Powell argued is good news for regulators.
“This demonstrates the weaknesses and work that needs to be done,” Powell said, referring to the “significant” structural and transparency issues in DeFi. “Crypto winter gives us a little bit of time. That situation will not persist indefinitely.”
There are several pressure points that need more work, according to Powell, regarding novelties like the need to regulate unhosted wallets or algorithms.
As DeFi attracts more retail investors, Powell reiterated the need for “appropriate” regulation to be put in place.
Powell previously called for legislation to “appropriately” regulate stablecoins. While lawmakers in the U.S. were unsuccessful in adopting legislation on stablecoins this summer, a more stringent piece of legislation has begun taking shape. The bill, however, will not include a central bank digital currency (CBDC) issuance.
During his remarks, Powell said the U.S. decided “not to proceed” with the issuance of a central bank digital currency, thereby giving policymakers a few more years to evaluate policy issues and technology issues as well as increase public confidence. Such work would involve different branches of the U.S. government as well.
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