Crypto needs “guardrails” to realize positive effects on the financial system, says Fed chief

Michael Barr, deputy chairman for oversight at the Federal Reserve, has acknowledged that crypto technology still holds promise to transform the financial system, but stressed the need for “guardrails” to harness its potential.

Barr’s comments come as the use of cryptocurrencies such as Bitcoin and Ethereum continues to grow in popularity, with both investors and financial institutions seeking to capitalize on the potential for high returns and decentralized transactions.

However, the lack of regulation and oversight in the sector has raised concerns about fraud, money laundering and other illegal activities.

Michael Barr, Federal Reserve Vice Chair for Supervision. Image: American Enterprise Institute

Cryptorooms need a specialized team of experts

According to Barrthe Federal Reserve is assembling a “specialized team of experts” to help regulate the digital currency industry.

The Fed’s top regulator has stated that digital asset experts are required to “help us learn from new developments and ensure we are up-to-date on innovation in this sector.”

The US Federal Reserve has taken a number of measures in recent months to ensure that lenders treat the cryptocurrency sector with caution. These measures include mandating banks to report any cryptocurrency activities to regulators before proceeding and warning companies that digital currency deposits can be highly volatile.

“Our goal is to create guardrails, while allowing room for innovation that can benefit consumers and the financial system more broadly,” he said.

Image: Kevin Lamarque/Reuters

Federal Reserve’s stance on crypto regulation

The Federal Reserve, as America’s central bank, plays a key role in regulating the country’s financial system, including the emerging area of ​​digital assets. Although the Fed does not have direct regulatory authority over asset types such as Bitcoin and Ethereum, it does have oversight responsibilities for banks and other financial institutions that engage with these assets.

In recent years, the Fed has taken a cautious approach to bitcoin regulation, citing concerns over potential risks to financial stability, investor protection and anti-money laundering efforts.

Fed officials have emphasized the need for clear regulatory frameworks and standards to govern the use and trading of cryptocurrencies, while recognizing the potential benefits of these assets for innovation and financial inclusion.

Crypto total market cap moving down, currently at $881 billion on the daily chart | Chart: TradingView.com

Fed has worked closely with other federal agenciessuch as the Securities and Exchange Commission and the Treasury Department, to coordinate their cryptocurrency regulation efforts.

However, the regulatory landscape for cryptocurrencies remains fragmented and uncertain, with different agencies and jurisdictions taking different approaches to these assets. As the crypto market continues to evolve, the Fed’s role in shaping its regulation and oversight is likely to remain a topic of ongoing debate and scrutiny.

– Featured image from the Alfred Lerner College of Business and Economics – University of Delaware