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Intro: FOMC has been concerned about the increasing use of cryptocurrencies by the people in the U.S. The issue was discussed at the recently concluded closed-door meeting in July for the first time. Federal Reserve officials showed concern about the potential danger posed by cryptocurrencies to the financial system.
It seems the opinion of the U.S. top-notch is confusing. At one point, where the politicians, regulators are embracing cryptocurrency, there is another section of people from the same fraternity who are wary of the increasing use of cryptocurrencies and fear that it will paralyse the financial system.
Recently a meeting of top Federal Reserve officials was held in which they showed concern about the potential danger posed by cryptocurrencies to the financial system that they discussed during the seminal monthly closed-door meeting in July.
Difference of opinion
As per the minutes of the meeting’s report that was held between July 27-28 of the Federal Open Market Committee (FOMC), some participants cited various potential risks to financial stability including the risks associated with more use of cryptocurrencies.
This is the panel that sets monetary policy at the U.S. Central Bank. They also decide on the interest rates announced after its monthly meetings. The officials of the Federal Reserve Board in Washington and regional Fed banks have expressed their opinion on the use of crypto in recent months, from welcoming to wary. This appears to be the first time the topic has been discussed in the FOMC.
It shows that another sign that the industry has arrived following its role holding up the $1trillion bill in Congress. The minutes of the meetings were released recently but did not divulge much about who cited the opinion on the cryptocurrencies usage. The meeting was chaired by 11-seat committee members.
Few officials have also talked about the need to regulate stablecoins. The officials noted that there is a lack of fragility and transparency associated with stablecoins. It is very important to monitor them closely and the need to develop a regulatory authority to address any risk related to financial stability associated with stablecoins.
The FOMC is also concerned about the investments made by issuers of stablecoins. They are supposed to be redeemable 1-for-1 with dollars and the potential for a sell-off in the underlying assets. They are also concerned that these outfits might be hit with a high number of redemption requests simultaneously.
The officials are of the view that these stablecoins are material players in the paper market. They are operating like unregulated money market funds which are not even stable themselves, feels Steven Kelly, a research associate at the Yale Program on Financial Stability.
Steve Anderson is an Australian crypto enthusiast. He is a specialist in management and trading for over 5 years. Steve has worked as a crypto trader, he loves learning about decentralisation, understanding the true potential of the blockchain.
