US Fed vice chair calls for urgent regulation in cryptocurrency market

ANKARA 

Vice Chair of the US Federal Reserve, Lael Brainard, called for urgent regulation Friday in the cryptocurrency market.

"The recent turbulence and losses among retail investors in crypto highlight the urgent need to ensure compliance with existing regulations and to fill any gaps where regulations or enforcement may need to be tailored—for instance, for decentralized protocols and platforms," she said at the Bank of England Conference in London.

"As we consider how to address the potential future financial stability risks of the evolving crypto financial system, it is important to start with strong basic regulatory foundations," she said.

Brainard stressed that innovation has made financial services faster, cheaper and reduced costs in finance but added that some costs are also necessary to keep the system safe.

She cited the price collapse of the controversial stablecoin TerraUSD, also known as UST, in June, which led to turmoil in the crypto market.

"The Terra crash reminds us how quickly an asset that purports to maintain a stable value relative to fiat currency can become subject to a run," she said. “The collapse of Terra and the previous failures of several other unbacked algorithmic stablecoins are reminiscent of classic runs throughout history. New technology and financial engineering cannot by themselves convert risky assets into safe ones."

Brainard emphasized that regulatory foundations for the crypto financial system should be established before the crypto ecosystem becomes large and poses risks to the stability of the broader financial system.