WASHINGTON–Federal Reserve Chairman Jerome Powell said the central bank supports innovation in digital financial products, but he also cautioned that it’s “easy to see the risks” of certain new technologies, including cryptocurrencies.
Those risks could demand a regulatory overhaul, the Fed chair added.
Speaking during a discussion as part of a panel that included other central bank governors and which was hosted by the Bank of International Settlements, Powell said some financial innovations would require changes to existing laws and regulations to ensure proper oversight of the broader financial sector.
“There are potential financial-stability concerns for some products,” Powell said. “We don’t know how some digital products will behave in times of market stress.”
Instead, Powell said the Fed will be guided by a principle of “same activity, same regulation,” which means that activities that are regulated in the banking system needed to be subject to the same rules if those activities migrate outside of the regulated banking sector.
Regulation ‘Highly Likely’
“It’s highly likely that digital financial activities that are currently outside the regulatory perimeter will…be brought within it, which is necessary to level the playing field, keep trust of users, protect consumers, and all of that,” Powell said.
As CUToday.info reported earlier, in January, the Fed launched a review of the potential benefits and risks of issuing a U.S. digital currency. Fed officials have been divided on the issue, which has delayed any move forward.
Powell told the meeting the Fed is “only at the beginning of this journey” and that it hadn’t made any decisions about whether it would issue a digital form of the dollar.
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