Fed’s Vice Chair Brainard Calls for Regulatory Framework for Cryptocurrencies

Federal Reserve Vice Chair Lael Brainard said growth in new digital assets and the recent developments calls for regulatory framework around this asset class.

“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 added that 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.”

“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.”