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Federal Reserve vice-chair calls for crypto regulations to address risks

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The vice-chair of the US Federal Reserve, Lael Brainard, has urged that regulators pay concern to the cryptocurrency space, or they would end up regretting it. Brainard was speaking at a conference for the Bank of England on Friday.

Fed vice-chair calls for crypto regulations

Brainard said that crypto assets carried similar basic risks to traditional finance. Therefore, the space needed to be regulated by implementing “strong guardrails” that would protect investors. The Fed vice chair even pointed to the recent recession in the crypto market.

In her speech, Brainard generalized all cryptocurrencies and addressed the recent performance, which elevated volatility concerns. She further compared the risks in the crypto space to those faced in traditional finance.

Brainard said that as the adoption of cryptocurrencies grows and they become more integrated into the financial system, there would be a growing need for regulations to address the risks.

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She further stressed that assets that had the same risk needed the same disclosure and the same kind of regulation. Moreover, the global community needed to work with financial regulators to address the issue of the cross-border nature of the cryptocurrency sector. Brainard’s call for international cooperation is similar to the sentiments the US Treasury Department shared on Thursday.

She further raised concern over the growing involvement of traditional banks in the crypto space, which posed a risk to the financial system’s stability. She opined that bank involvement in the crypto space needed to be encouraged, as it would provide regulators with the incentive needed to regulate the market.

However, as banks are encouraged to join the crypto sector, a strong regulatory structure was needed to deal with crypto finance and ensure that banks were not heavily invested in cryptocurrencies. some banks have provided avenues for their clients to buy Bitcoin and other cryptocurrencies.

Brainard talks about stablecoins

Brainard also addressed stablecoin, saying they could bridge the crypto sector to the fiat system. She also said that two of the largest stablecoins accounted for 80% of the market cap. However, she added that fiat-backed stablecoins were vulnerable to bank runs.

Brainard also addressed the need for a central bank digital currency (CBDC), saying it would provide stability and a neutral means of settlement in the future of the crypto ecosystem. She also outlined how there would be interoperability between stablecoins and a neutral payment method. Brainard further noted that while crypto offered benefits such as low transaction costs, regulations were a cost that needed to be endured.

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