Fed’s Brainard Sees Need for Regulation Around Crypto Assets

Federal Reserve Vice Chair Lael Brainard said growth in new digital assets and the recent pressure some of them have seen highlights the need for better regulatory guardrails around these instruments.

“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,” Brainard said in testimony prepared for a House Financial Services Committee hearing on Thursday.

She alluded to the recent collapse of algorithmic stablecoin TerraUSD as well as Tether’s dipping below its intended one-to-one peg to the dollar, saying “these events underscore the need for clear regulatory guardrails.”

The Fed issued a discussion paper on central bank digital currency in January, calling it a “first step” in public discussion with stakeholders. The Fed has made no commitment to issue a digital dollar, though Brainard’s previous comments on the topic suggest she views such a step as strategically important for the U.S. to both have a say in global standards and assure the dollar’s status as the anchor currency in the international payment system.

“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 U.S. central bank digital dollar could affect the use of the dollar in global payments,” Brainard said. “U.S. CBDC may be one potential way to ensure that people around the world who use the dollar can continue to rely on the strength and safety of the U.S. currency to transact and conduct business in the digital financial system.”

Brainard also said the Fed must be attentive to the risk that a digital dollar replace some bank liabilities in the financial system.

“Accordingly, if the Federal Reserve were to move forward on CBDC, it would be important to develop design features that could mitigate such risks, such as offering a non-interest bearing CBDC or limiting the amount of CBDC a consumer could hold or transfer.”

Craig Torres reports for Bloomberg News.

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