Fed leader Jerome Powell made valuable statements about cryptocurrencies. Speaking at an event organized by France’s central bank, Banque de France, Powell stated that there are invaluable structural transparency problems around DeFi.
Fed Leader talks on cryptocurrencies
“What is the role of central banks?” organized by the Bank of France on 27 September. The event, titled, discusses the tokenization of finance and the role of central banks in it. Fed Leader Jerome Powell and World Bank Leader Christine Lagarde participated in the event.
According to Powell, cryptocurrencies need real regulation
Fed leader Powell made harsh warnings, especially for the DeFi ecosystem. He argued that the process of financial normalization through rate hikes has exposed the flaws in DeFi. He also said that cryptocurrencies swelled during the pandemic when the Fed entered quantitative easing. Powell has this to say about DeFis in terms of financial stability:
The interaction between the DeFi ecosystem and the classical banking system and the classical financial system is not that great at this point. Thus, we have witnessed the DeFi winter with no valuable impact on the banking system and broader financial stability.
Fed leader says DeFi winter exposes needs
Referring to the sharp price movements in the market, Powell said that these periods reveal the shortcomings:
(DeFi winter) That’s enough. I think it reveals weaknesses in the arrangement and the work that needs to be done with caution and thought. It gives us some time, but this situation will not last forever.
The prominent statements of the Fed leader were on the regulation of cryptocurrencies. Powell said the DeFi market needs more appropriate regulation:
Ultimately this is not stable stability and we need to be very careful about how crypto activities are handled within regulatory parameters. In any case, wherever they are, as DeFi expands and begins to touch more and more personal customers, there is a real need for more appropriate regulations to be in place.
Powell also talked about the importance of the Central Bank Digital Currency Unit (CBDC). European Central Bank Leader Christine Lagarde also believes that CBDCs will allow central banks to remain an anchor in the era of cryptocurrencies.
The idea of using CBDCs is highly controversial. Layah Heilpern, the author of Undressing Bitcoin, calls it an unethical form of money. He believes that because CBDCs are programmable currencies, they can be misused by central banks.
CBDCs are also a hot topic within the Federal Reserve. Neel Kashkari of the Minnesota Fed explained that he does not see any random use cases for CBDCs in the US. Kashkari says CBDCs can be used as mass surveillance tools.
Reactions to Powell
In the middle, the crypto ecosystem is not happy with the comments from Jerome Powell. Powell commented that the central bank will always be the main source of belief behind the money. The crypto ecosystem is not happy with these comments, as this idea is completely against Satoshi Nakamoto’s vision.