It's important to ensure appropriate regulation is in place as crypto use increases in the retail financial system, Federal Reserve Chair Jerome Powell said Tuesday during a conference hosted by the Banque of France.
Monetary policy normalization has revealed significant structural issues in the DeFi system, he said. Specifically, there has been a lack of transparency, he said.
On the positive side, from a financial stability standpoint, the slump in crypto hasn't had a broader impact on financial stability. "We need to be very careful about how crypto activities are taken within the financial perimeter," he Powell said.
Update at 8:07 AM ET: The European Central Bank will decide on whether it will create a central bank digital currency, in about a year, ECB President Christine Lagarde said. The central bank must be careful that a digital euro won't crowd out commercial bank deposits. Commercial banks and other private parties should be involved, but "the pricing must be right," she said.
8:10 AM ET: The ECB is now moving into prototype phase, she said.
8:14 AM ET: "Novel structures present new risks," Fed's Powell said. One example of a novel structure would be an unhosted crypto wallet. "There's a lot of work and a lot of thinking that needs to be done to determine what is acceptable."
Another higher level point to consider is whether DeFi cost savings come from ignoring risks, he added.
Speaking about stablecoins, he notes that they're "private forms of money, they will be subject if their reserves are not very high quality assets."
8:18 AM ET: The Fed doesn't expect to make a decision on a CBDC "for some time," and will require backing from Congress to proceed with one, if it decided to create a CBDC. Studying the issue will take at least a couple of years, he added.
