Federal Reserve Vice President Lyle Brainard has emphasized the importance of establishing sound regulation for the crypto financial system “now before the crypto ecosystem is so large or interconnected that it can pose a risk to the stability of the broader financial system.” “
Fed Vice Chair Brainard on Crypto Regulation
Lyle Brainard, deputy chairman of the Federal Reserve’s board of governors, spoke about crypto regulation and decentralized finance (DFI) at a Bank of England conference in London on Friday.
He began by citing the recent volatility in the cryptocurrency market, stating that “it has exposed serious vulnerabilities in the crypto financial system.” He added that both the traditional and crypto financial systems are susceptible to leverage, settlement, ambiguity, maturity and liquidity change risks.
Noting that “innovation has the potential to make financial services faster, cheaper and more inclusive and to do so in a native way to the digital ecosystem,” Brainard emphasized:
It is important that the foundation for sound regulation of the crypto financial system is now established before the crypto ecosystem becomes so large or intertwined that it may pose a risk to the stability of the wider financial system.
Emphasizing the need for national and international cooperation, the Federal Reserve Vice President said: “The recent unrest and pitfalls among retail investors in crypto highlight the urgent need to ensure compliance with existing regulations and fill any gaps. where regulations or enforcement may be required. Tailored – for example, for decentralized protocols and platforms.”
Future financial flexibility will be greatly enhanced if we ensure that the regulatory framework encompasses the crypto financial system and reflects the principle of equal risk, equal disclosure, equal regulatory outcome.
The Fed Vice President said that a US central bank digital currency (CBDC) could help financial stability “by providing a neutral reliable settlement layer in the crypto financial system of the future”.
On Thursday, the US Treasury Department provided President Joe Biden with a framework for international engagement on crypto assets, as directed in an executive order he issued back in March. The Treasury emphasized the importance of collaborating with international partners to develop global crypto standards for regulating digital assets.
What do you think of Federal Reserve Vice Chairman Lyle Brainard’s comments? Let us know in the comments section below.
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