Better regulation of the fast-growing world of crypto assets is needed not to keep rich people from losing money but for the sake of everyone else, Federal Reserve Governor Christopher Waller said on Friday.
“The main issue in crypto-asset regulation isn’t how to protect sophisticated crypto-investors; it’s how to protect the rest of us,” Waller said in remarks prepared for delivery to the SNB-CIF Conference on Cryptoassets and Financial Innovation in Zurich.
In particular, he said, the aim of regulation would be “to protect society from the often-irresistible pressure to socialize the losses of investors with limited resources, and to limit the spread of financial stress.”
In the last five years crypto assets have proliferated from a niche market valued at around $14 billion to a $3 trillion industry.
Several high-profile collapses in the crypto world recently have prompted calls for better guardrails for what’s essentially an unregulated market. One reason: their popularity. A recent Fed survey showed about 12 per cent of U.S. adults used or held cryptocurrency in the past year, mostly for investment purposes. Other surveys suggest the number of crypto-users is even higher.
In March President Joe Biden directed the Treasury and other agencies to start looking at how best to regulate the industry, even as central banks around the world – including the Fed – look into the possibility of creating a central-bank-backed digital currency.
Waller is among those at the Fed who say they don’t see a reason for issuing a central bank digital currency that would compete with privately backed digital currencies.
On Friday he laid out his reasoning for why those privately backed currencies do need better oversight, despite arguments from inside the industry that the markets are better left to their own devices so as to foster more innovation.