Federal Reserve concern on risk of expanded use of cryptocurrencies and stable coins
The US Federal Reserve board has expressed concern about the risks of expanded use of cryptocurrencies and stable coins because of a lack of transparency.
Cryptos were discussed in the Federal Reserve officials’ July assembly, according to minutes released on Wednesday.
“Some participants cited various potential risks to financial stability, including the risks associated with expanded use of cryptocurrencies or the risks associated with collateral liquidity at central counterparties during episodes of market stress,” the minutes stated.
A few members highlighted the fragility and the general lack of transparency associated with stablecoins, the importance of monitoring them closely, and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products.
Federal set to taper before year-end
Fed officials could be ready to reduce the pace of monthly bond purchases before the end of the year, though some bankers would prefer to postpone tapering to 2022.
“Looking ahead, most participants noted that, provided that the economy was to evolve broadly as they anticipated, they judged that it could be appropriate to start reducing the pace of asset purchases this year,” the minutes stated.
Fed bankers stressed that tapering would not influence the target range for the federal funds rate, as participants claimed the current stance of monetary policy to be “appropriate” to Fed employment and inflation targets.
“Many participants noted that, when a reduction in the pace of asset purchases became appropriate, it would be important that the committee clearly reaffirm the absence of any mechanical link between the timing of tapering and that of an eventual increase in the target range for the federal funds rate,” the minutes added.
“Participants judged that the current stance of monetary policy remained appropriate to promote maximum employment as well as to achieve inflation that averages 2% over time, and longer-term inflation expectations that are well anchored at 2%."
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