Federal Reserve Chair Jerome Powell discussed the risks associated with cryptocurrencies in the context of the Financial Stability Oversight Council's annual report.
Overview of the Oversight Report
The Financial Stability Oversight Council's annual report raised concerns about the risks posed by cryptocurrencies. Powell was asked whether speculation in this unregulated area could harm investors' financial well-being.
Federal Reserve's Role in Managing Cryptocurrencies
Powell noted the Federal Reserve's primary role is overseeing how banks interact with cryptocurrencies. Banks can serve customers in this area as long as they understand and manage the associated risks. Many banks under the Federal Reserve's supervision already engage with cryptocurrencies securely. However, the threshold for these activities is higher due to the nascent nature of digital assets.
Balancing Risks and Innovation
Powell emphasized that if a bank decides to offer crypto services, it must ensure full safety, as it operates under federal safety nets, including deposit insurance. The Fed's cautious approach aims to prevent risks to the financial system while supporting innovation. Powell assured that the Federal Reserve is not opposed to cryptocurrency innovation but seeks to prevent overly cautious regulations from hindering legitimate business activities.
The Fed Chair highlighted the importance of balancing support for cryptocurrency innovations with protection of financial system stability.
