John Williams, president and chief executive officer of the Federal Reserve Bank of New York, has said the institution should closely monitor the transformations of the cryptocurrency industry and make necessary updates on financial policy.
Speaking at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop Wednesday, he said stablecoins and central bank digital currencies (CBDCs) have a better chance of succeeding in the future monetary network.
Williams is an outspoken critic of the crypto sector. In 2018, he argued that digital assets “fail the test of what a currency should be”. In addition, criminals could use them for illegal activities, he claimed.
Williams appears to have softened his stance with Wednesday’s statement.
“It is therefore critical that we understand how these transformations can affect the economy and the financial system, as well as the implementation of monetary policy and central bank balance sheets. In addition, we need to think carefully about proper regulations to protect consumers and investors and ensure the stability and security of the financial system,” he said.
As for the different types of cryptocurrencies, he said the most promising are the stablecoins that are “fully backed by safe and liquid assets”, and CBDCs.
Looking ahead, the big question is what a world of digital currencies such as stablecoins and CBDCs would mean for the implementation of monetary policy. How will central banks anticipate and adapt to the changing landscape brought about by the possibility of digital currencies? Like central bankers, it’s critical that we stay focused on fulfilling our responsibilities while keeping pace with the world around us.”
Earlier this year, the board predicted that stablecoins could be very useful in cross-border payments. However, they must be properly regulated before they can participate in such trades.
Last summer, Williams argued that the industry’s growth could be an obstacle to the Fed’s ambitions to release a digital dollar. He also urged the Federal Reserve and central banks to become familiar with blockchain technology and how to regulate the space before issuing such a product.