Fed vice chair says regulation necessary for digital assets

ANKARA

Lael Brainard, the vice chair of the US Federal Reserve, said Thursday a regulatory framework is necessary for digital assets during her speech before the House of Representatives' Committee on Financial Services.

"There has been explosive growth in an emergent digital financial system built around new digital assets and facilitated by crypto-asset platforms and stable coins as settlement assets," she said. "In recent weeks, two widely used stable coins have come under considerable pressure."

Brainard pointed out the price of the cryptocurrency Terra Luna, which plummeted to $0.0001310, from $92.31 a month ago. Its sibling UST, which was initially designed to be pegged one-to-one with the US dollar, also dove to $0.04264.

"These events underscore the need for clear regulatory guardrails to provide consumer and investor protection, protect financial stability, and ensure a level playing field for competition and innovation across the financial system," Brainard said.

"The recent turmoil in crypto-financial markets makes clear that the actions we take now -- whether on the regulatory framework or a digital dollar -- should be robust to the future evolution of the financial system," she added.

The Fed vice chair noted that central bank digital currency (CBDC), a digital form of a country’s sovereign currency, could coexist with and be complementary to stable coins.

"A CBDC would be attractive to risk-averse users during times of stress," she said. "In future states where other major foreign currencies are issued in CBDC form, it is prudent to consider how the potential absence or presence of a US central bank digital dollar could affect the use of the dollar in global payments."

While more than 100 countries are exploring or piloting CBDCs, including the Fed, just a handful have so far issued them.