Federal Reserve chief Jerome Powell turned up the heat on cryptocurrencies on Thursday, stating that they pose a risk to financial stability and that tighter regulation of the increasingly popular electronic currency may be warranted.
The Treasury Department, meanwhile, pointed to concerns that high net worth individuals could use the largely unregulated sector to avoid taxes and said it wanted to report large crypto asset transfers to the authorities. Continue reading
The successive announcements came in a week that Bitcoin, the most popular cryptocurrency, took a wild ride and fell as much as 30% on Wednesday after China announced new restrictions on the sector, underscoring the volatility of the sector. Continue reading
Powell highlighted the cryptocurrency risks in an unusual way Video message This also set a clearer timetable as the Fed is looking into the possibility of introducing its own digital currency. Continue reading
Powell highlighted the potential benefits of advances in financial technology, saying that cryptocurrencies, stable coins, and other innovations “can also pose potential risks to these users and the wider financial system.”
As technology advances, “our attention must also be directed to the appropriate regulatory and supervisory framework. This includes attention to private payment innovators who are currently not in line with traditional regulatory arrangements for banks, investment firms and other financial intermediaries.”
Powell’s comments showed how seriously the Fed was forced to anticipate the surge in popularity and market values of nontraditional currency options like Bitcoin, particularly with a view to developing a digital version of the US dollar, the world’s reserve currency.
The Fed and Treasury Department are looking at cryptocurrencies, which now have a market cap of around $ 2 trillion, as more of an art, gold, or other highly speculative asset.
However, a central bank digital currency gives anyone who holds it – a person, a company, or even any other government – a direct claim on that central bank, just as holding a paper dollar bill does now.
Powell said the Fed would publish a discussion paper on digital payments this summer, focusing on the benefits and risks of setting up a central bank digital currency, as well as soliciting public comments.
He noted that “cryptocurrencies have not been a convenient way to make payments, due in part to their fluctuations in value.”
The Treasury Department also highlighted cryptocurrency risks, including opportunities for wealthy individuals to move taxable assets into the largely unregulated crypto sector.
“Cryptocurrency already poses a significant identification problem as it broadly facilitates illegal activities, including tax evasion,” the Treasury Department said.
His proposal, which was presented in the context of a Policy report A detailed account of the Biden administration’s $ 80 billion IRS enforcement proposal to increase revenue collection would provide the IRS with additional resources to address crypto assets.
In addition to reports of cryptocurrency transfers valued at over $ 10,000 that would run in parallel with bank reports of similarly sized money transfers, the Treasury Department suggested that crypto asset exchanges and custodians also submit transactions related to bank interest, dividend and Report brokerage transactions.
The reporting requirements could also, depending on the structure, allow the government to gain insights into US companies that are being blackmailed to pay hackers’ ransom, almost always in cryptocurrency, in order to regain control of their IT systems.
Law enforcement and private sector cybersecurity experts alike have complained that a lack of transparency regarding these ransomware incidents is contributing to their persistence.
The Treasury Department’s disclosure took the wind out of a rally in the dollar value of Bitcoin on Thursday that followed sharp falls in Bitcoin and Etherium on Wednesday. Bitcoin rose 8.7% in afternoon trading after a previous 10% gain. Continue reading
While the Fed and some other developed countries are still researching what a central bank digital currency would look like, China is taking a quick step and is currently testing a digital version of the yuan, with plans to increase usage ahead of the 2022 Beijing Winter Olympics.
Powell said last month that the Fed will not accelerate its efforts in response to China’s more aggressive pace, noting that the approach taken there would not work in the United States.
“Getting it right is far more important than doing it quickly,” Powell said after the guidelines-setting meeting in April.
The Boston Fed is currently working with the Massachusetts Institute of Technology to research the technology that could be used for a central bank digital currency and will release those results in the third quarter.
Action by Congress would be required before a digital currency could be developed.
Also on Thursday, US Securities and Exchange Commission chairman Gary Gensler said he would like to see tighter regulation of cryptocurrency exchanges, including those that only trade Bitcoin and do not currently have to register with his agency.
“This is a fairly volatile, one could say very volatile, asset class, and the investing public would benefit from better investor protection on the crypto exchanges,” he said at the financial industry regulator’s annual conference.
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