Powell flags risks of new digital financial products

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Federal Reserve Chairman Jerome Powell said the central bank supports innovation in digital financial products, but warned it was “easy to see the risks” of some new technologies, including cryptocurrencies. currencies, which would require an overhaul of the regulations.

Mr. Powell said on Wednesday that some of these innovations would require changes to existing laws and regulations to ensure adequate oversight of the broader financial sector. He spoke at a roundtable with other central bank governors organized by the Bank for International Settlements.

“There are potential financial stability issues for some products,” Powell said. “We don’t know how some digital products will perform in times of market stress.”

He said the central bank would be guided by a “same business, same regulation” principle, meaning that regulated activities in the banking system should be subject to the same rules if those activities migrate outside the regulated banking sector.

“Digital financial activities that are currently outside the regulatory perimeter are highly likely to be brought into it, which is necessary to level the playing field, maintain user trust, protect consumers, etc.,” said Mr. Powell.

In January, the Fed launched a review of the potential benefits and risks of issuing a US digital currency. Fed officials are split on the issue, making it unlikely that they will decide soon whether or not to create a digital dollar.

Unlike private cryptocurrencies such as bitcoin, a Fed version would be issued and backed by the US central bank, a government entity, just like US dollar notes and coins.

Mr Powell said the Fed was “only at the beginning of this journey” and the Fed had not made a decision on whether it would issue a digital form of the dollar. Mr. Powell did not talk about interest rate policy. or the economic outlook in his remarks on Wednesday.

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