The Federal Reserve Chairman called for more appropriate regulation on Tuesday after he said the monetary policy normalization worldwide has revealed significant structural issues in the Defi system.
He spoke at a conference hosted by the Banque of France.
Powell said that the interaction between traditional banking system and traditional financial system is small at the moment. The Defi winter did not have a significant impact on the banking system.
That's a positive thing. It shows the weaknesses and the work that needs to be done around regulation carefully. We have a little bit of time, but that situation won't last forever.
It isn't a stable equilibrium and we need to be very careful with how we take the activities. Wherever they take place, there is a need for more appropriate regulation so that as Defi expands and starts to touch more retail customers, more appropriate regulation is in place.
Powell was concerned about the risks of new financial products. Some products may have financial stability concerns. In times of market stress, we don't know how digital products will act.
He gave an update on the U.S.'s progress with digital currency. Powell said the Fed doesn't expect to make a decision on aCBDC "for some time", and will require backing from Congress to proceed with one. It will take at least two years to study the issue.
The European Central Bank is in a similar situation. It will make a decision about the creation of a central bank digital currency. Christine Lagarde, the president of the European Central Bank, said that the central bank should be careful with the digital euro. She said that commercial banks and other parties should be involved.
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