The Vice Chair of the Federal Reserve is reportedly saying that crypto regulations need to be enacted now before the digital assets industry threatens the stability of the entire financial system.
According to a new report by CNBC, Fed Vice Chair Lael Brainard says that although the digital asset space has the potential to disrupt the financial system, she highlights the significance of regulating the nascent industry while it is still relatively small.
“Innovation has the potential to make financial services faster, cheaper and more inclusive, and to do so in ways that are native to the digital ecosystem.
It is important that the foundations for sound regulation of the crypto financial system be established now before the crypto ecosystem becomes so large or interconnected that it might pose risks to the stability of the broader financial system.”
Brainard also says the volatile price of cryptocurrencies are particularly troublesome, but notes that the digital asset industry and the traditional financial system still aren’t so intertwined where something can’t be done now to prevent bigger risks in the future.
“New technology and financial engineering cannot by themselves convert risky assets into safe ones. Despite significant investor losses, the crypto financial system does not yet appear to be so large or so interconnected with the traditional financial system as to pose a systemic risk.
This is the right time to establish which crypto activities are permissible for regulated entities and under what constraints so that spillovers to the core financial system remain well contained.”
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