Fed Reserve Chair Crypto Regulation Needed Before DeFi Joins With Banking

Federal Reserve Chair Jerome Powell thinks the crypto industry could cause broader financial turmoil in the future than it has so far, so there’s a need for better regulation, Bloomberg wrote.

Global increases in interest rates have exposed structural flaws with DeFi, Powell said, speaking Tuesday (Sept. 27) during a panel about digital finance.

“The good news, I suppose, is that the interaction — from a financial stability standpoint — the interaction between the DeFi ecosystem and the traditional banking system and traditional financial system is not that large at this point.”

He said there was a need for more appropriate regulation so that, as DeFi grows, there will be rules in place.

He said the Fed is still looking at the idea of a digital currency, and he doesn’t think it will make a decision “for some time.” Powell said they’ll need approval from both the executive branch and Congress to make a central bank digital currency (CBDC).

Powell hasn’t endorsed a digital dollar yet, however. Powell has recently said stablecoin legislation should also be a priority at some point in the future.

Speaking in an interview at the Cato Institute, he said “we think that something like that which is purporting to be money would need to be appropriately regulated.” But perception was a big part of the problem.

“If people are going to think something is money, then it needs to actually have the qualities of money,” Powell said. “If it doesn’t, then I don’t think you want to take money and make it into just another consumer product where sometimes it fails and sometimes it’s good.”

He said payments stablecoins would have to be “guaranteed to be good” and would need clarity and transparency. But he added that there would have to have a balance so as to allow for innovation, saying they “don’t want to be in that place” of stifling innovation.