U.S. Federal Reserve Chief Jerome Powell stepped up the pressure on cryptocurrencies on Thursday, saying they pose risks to financial stability and indicating that more and more regulation of electronic money. popular might be justified.
The Treasury Department, meanwhile, raised concerns that wealthy people could use the largely unregulated industry to avoid taxes and said it wanted large transfers of crypto assets to be reported. to the authorities. Read more
The back-to-back announcements came within a week when Bitcoin, the most popular cryptocurrency, took a wild ride, dropping as much as 30% on Wednesday after China announced new restrictions on the sector, highlighting the volatility of the market. sector. Read more
Powell highlighted the risks of cryptocurrency in a video message which has also set a clearer timeline as the Fed explores the possibility of adopting its own digital currency. Read more
While highlighting the potential benefits of advances in financial technology, Powell said cryptocurrencies, stablecoins and other innovations “may also carry potential risks for these users and for the financial system at large.”
As technology progressed, “our attention must also be paid to the appropriate regulatory and supervisory framework. This includes paying attention to private sector payments innovators who are currently not within the framework of the provisions. traditional regulations applied to banks, investment firms and other financial intermediaries. “
Powell’s comments showed how compelled the Fed has been to take into account the skyrocketing popularity and market value of non-traditional currency options such as Bitcoin, especially as it plans to expand. a digital version of the US dollar, the world’s reserve currency.
The Fed and Treasury view cryptocurrencies, which now have a market capitalization of around $ 2 trillion, to be more of art, gold, or other highly speculative assets.
A central bank digital currency, however, offers anyone who owns it – a person, a business, even another government – a direct claim on that central bank, which is exactly what owning a banknote does now. a dollar in paper.
Powell said the Fed will release a discussion paper on digital payments this summer, emphasizing the benefits and risks of establishing a central bank digital currency, and will also seek public comment.
He noted that “to date cryptocurrencies have not been a convenient way to make payments, given, among other factors, their fluctuations in value.”
The Treasury has also flagged cryptocurrency risks, including opportunities for high net worth individuals to transfer taxable assets into the largely unregulated crypto industry.
“Cryptocurrency already poses a significant detection problem by facilitating illegal activities at large, including tax evasion,” the Treasury said.
His proposal, disclosed as part of a policy report detailing the Biden administration’s $ 80 billion IRS app proposal to boost revenue collection, would provide additional resources for the IRS to process crypto assets,
In addition to reports of cryptocurrency transfers over $ 10,000 that would parallel bank reports of similar sized cash transfers, the Treasury also proposed that crypto asset exchanges and custodians also report to the IRS transactions related to bank interest, dividends and brokerage transactions.
The reporting requirements, depending on their structure, could also give the government a better understanding of U.S. companies that are extorted to pay ransoms to hackers, almost invariably in cryptocurrency, to regain control of their computer systems.
Law enforcement and cybersecurity experts in the private sector have complained that a lack of transparency around these ransomware incidents contributes to their continued occurrence.
The Treasury disclosure ended a rally in the dollar value of Bitcoin on Thursday that followed steep drops for Bitcoin and etherium on Wednesday. Bitcoin rose 8.7% in afternoon trading after an earlier gain of 10%. Read more
While the Fed and other developed economies are still researching what a central bank digital currency would look like, China is moving at a rapid pace and is currently piloting a digital version of the yuan, with plans to increase use. ahead of the Beijing 2022 Winter Olympics.
Powell said last month that the Fed would not rush 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 fast,” Powell said after the April policy meeting.
The Boston Fed is currently working with the Massachusetts Institute of Technology to research technology that could be used for a central bank digital currency and will release those results in the third quarter.
Congress action would be needed before a digital currency could be developed.
Also on Thursday, the chairman of the United States Securities and Exchange Commission, Gary Gensler, said he would like to see more regulation regarding cryptocurrency exchanges, including those that only trade bitcoin and are not currently not required to register with his agency.
“This is a fairly volatile, one could say very volatile asset class, and the investing public would benefit from greater investor protection on crypto exchanges,” he said during the annual conference of the Financial Sector Regulatory Authority.
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