Lael Brainard, the vice-chair of the US Fed, advised attendees at a Bank of England seminar in London on July 8th to regulate crypto now or regret it later.
Brainard asserted that cryptocurrency needs “strong guardrails.” This is because it faces the same fundamental dangers as conventional finance. She provided the recent market slump as evidence.
Brainard used the broadest terms possible during her remarks. She talked about the current decline in crypto performance.
Brainard also referred to its volatility, connection with hazardous assets, vulnerability to bank failures, and other dangers related to conventional banking.
Brainard Reiterates The Need For International Collaboration
Brainard supported the idea of “equal risk, equal disclosure, and equal regulatory consequence.” Also, she asked financial regulators to work together internationally.
This would help them address the cross-border nature of the cryptocurrency sector. The latter statement reiterates the findings of a study issued on July 8th by the US Treasury Department.
The Treasury Department had highlighted the need for US regulators to partner with foreign regulators. The Fed executive was particularly concerned about two main areas in the financial system. The first was the engagement between banks and digital currencies.
She stated that bank engagement in cryptocurrency raises the stability risk of the financial system. However, Brainard noted that regulators should encourage the involvement of banks with crypto.
This is because it would give regulators strong viewing angles of the system. Additionally, she emphasized the need for a strong crypto regulatory system.
The executive believes this would favor substantial bank engagement in the crypto sector. Meanwhile, this is contrary to her support for the “same risk, same transparency” concept.
Brainard Shows Support For CBDC
The second source of risk spillover, according to Brainard, is stablecoins. She described them as a link between cryptocurrencies and fiat.
Furthermore, she said the two biggest stablecoins currencies control over 80% of the market cap. The two largest stablecoins are USDT and USDC.
She added that stablecoins backed by fiat are very susceptible to runs. Hence, one cannot overlook their potential effect on the financial market.
According to the VC, a CBDC will be important to the US financial system. She said a CBDC could play a significant role in enhancing the nation’s financial stability.
It would act as a neutral, protected settlement layer to the upcoming crypto financial system. She mentioned stablecoin interoperability as a possible use for such a neutral payment layer.
Finally, Brainard talked about the benefits of crypto regulation. According to her, one of the benefits of cryptocurrency is that it delivers cheaper services.
Meanwhile, regulating and supervising the crypto space is a bit expensive. However, she said the fees associated with regulating the industry are also worthwhile.
