Top Federal Reserve officials are so worried about
the financial system's potential threat from cryptocurrency that they addressed
it at a key monthly closed-door meeting in July.
According to the minutes of the Federal Open Market
Committee meeting on July 27-28, “some participants highlighted different
possible threats to financial stability, including concerns connected with
increased usage of cryptocurrencies” (FOMC). This is the monetary policy-making
panel of the Federal Reserve of the United States, and the interest-rate
choices released following its monthly meetings are the topic of considerable
astrology and Kremlinology (in the figurative sense).
While officials from the Federal Reserve Board in
Washington and regional Fed banks have voiced a variety of opinions on
cryptocurrency in recent months, ranging from positive to negative, this seems
to be the first time the subject has come up in the FOMC.
As a result, it's another another indication that
the sector has "arrived," after its involvement in delaying
Congress's $1 trillion infrastructure package.
The minutes, which were released on Wednesday, did
not specify which members of the 11-member committee raised these concerns.
According to the minutes, a few authorities also
mentioned the necessity for stablecoin regulation.
According to the minutes, the officials discussed the “fragility and lack of transparency connected with stablecoins, the significance of carefully monitoring them, and the necessity to create an adequate regulatory framework to handle any financial stability concerns associated with such products.”
While the document does not go into detail, one
reason FOMC members might be concerned is the investments made by stablecoin
issuers, which are supposed to be redeemable 1:1 with dollars, and the risk of
a sell-off in the underlying assets if these companies are hit with a large
number of redemption requests at the same time.
“There's mounting evidence that [stablecoins] are significant participants in the commercial paper market, functioning similarly to unregulated money market funds—which aren't even stable,” according to the report. Steven Kelly is a research associate at Yale's Program on Financial Stability, which aims to explain financial crises.
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