Crypto’s Rise Could Change Fed’s Monetary Policy, A Top Bank Executive Says

John Williams, president and chief executive officer of the Federal Reserve Bank of New York, has said that the institution should closely keep an eye on the transformations of the cryptocurrency industry and make necessary updates on the financial policies.

Speaking at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop Wednesday, he said that stablecoins and central bank digital currencies (CBDCs) have a better chance of succeeding in the future monetary network.

Williams is a vocal critic of the crypto sector. In 2018, he argued that digital assets do not “pass the test of what a currency should be.” Besides, criminals could use them in illicit activities, he claimed.

Williams seems to have softened his stance with Wednesday's statement.

“Therefore, it’s critical that we understand how these transformations could affect the economy and the financial system, as well as monetary policy implementation and central bank balance sheets. In addition, we must think carefully about proper regulation to protect consumers and investors and ensure the stability and safety of the financial system," he said.

Touching upon the different types of cryptocurrencies, he said that the most prospective ones are the stablecoins which are “fully backed by safe and liquid assets,” and CBDCs.

"Turning to the future, the big question is what a world of digital currencies like stablecoins and CBDCs would mean for the implementation of monetary policy. How will central banks anticipate and adapt to the changing landscape brought on by the possibility of digital currencies? As central bankers, it's critical that we remain focused on carrying out our responsibilities, while keeping pace with the world around us."

Earlier this year, the executive predicted that stablecoins could be highly useful in cross-border payments. However, they need to get properly regulated before taking part in such transactions.

Last summer, Williams claimed that the growth of the sector could be an obstacle to the Fed’s ambitions to release a digital dollar. He also urged the Federal Reserve and central banks to get familiar with blockchain technology and how to regulate the space before issuing such a product.