Biden’s new Fed could be a boon to crypto, experts say

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Investors have focused on what the reappointment of Federal Reserve Chairman Jerome Powell means for interest rates, but upcoming staff changes at the central bank will be just as important to the crypto industry. , according to experts.

President Biden’s appointment of Gov. Lael Brainard as Fed vice chairman, along with a pledge to appoint progressives to fill three more vacant board positions in the coming weeks, is good news for those who want to see the Fed issue a digital dollar, according to Owen Tedford, research analyst at Beacon Policy Advisors.

“All of the comments we’ve seen from Brainard compared to his fellow Republicans are much more supportive of the digital dollar,” he told MarketWatch. “You add three more Democratic governors and that gets things done in his direction.”

Brainard said in a May speech that several factors, including the growth of private digital currency like bitcoin BTCUSD, + 2.61%, increased use of digital payments, and foreign experimentation with the digital currency of the central bank “sharpen the focus” of the Fed on a potential digital dollar.

“It’s just very hard for me to imagine that the United States, given the dollar’s status as the dominant currency in international payments, would not come to the table under these circumstances with a similar offer,” he said. she said in remarks. at the National Association for Business Economics in September.

His adoption of the central bank’s digital currency contrasts with his fellow Governor, Christopher Waller, appointed by Donald Trump, who called the digital dollar a “problem-seeking solution” in a speech at the American Enterprise Institute in August.

But with three vacancies to fill on the Fed’s seven-member board, President Biden has the ability to reshape the central bank into a more digital currency-friendly central bank.

One of the top candidates for a board seat is Sarah Bloom Raskin, who has written in favor of a digital dollar as a potential tool to distribute federal aid money in the wake of the COVID-recession. 19. Another potential candidate, Federal Reserve Bank of Atlanta chairman Raphael Bostic, wrote about the central bank’s digital currency as a potential tool to promote financial inclusion.

The Fed will also be an important player in regulating the relationship of traditional financial institutions with digital assets. Tuesday, the central bank, in coordination with the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency, said it plans to “further clarify” how banks can manage digital assets.

In a joint statement, regulators pledged further guidance on whether and how banks can provide custody and custody of crypto assets, facilitate customer crypto transactions, asset-backed lending. cryptographic and how digital assets should be treated on bank balance sheets.

Acting Currency Comptroller Michael Hsu said in a speech last week that federal banking regulators “approach crypto business very cautiously with a high degree of caution,” but tight regulation of banks’ relationships with banks. digital assets isn’t necessarily bad for crypto in the long run, said Beacon’s Tedford.

“There is going to be a favorable atmosphere for regulation, including crypto,” he said. “In the long term it’s bullish because it’s legitimizing, but I could see it bearish in the short term.”

Jonathan McCollum, who heads the government relations practice at law firm Davidoff Hutcher and Citron, said in an interview that stricter crypto regulation is likely, but agreed it could set the stage for continued growth. Of the industry.

“Now that Biden has appointed Powell, I think there’s not much else we’re waiting for,” he told MarketWatch. “The SEC weighed in, the Treasury released its stablecoins report, all of these things are falling into place.”

The Fed has promised it will release a discussion paper on the benefits and risks of issuing a digital dollar, but its release has been delayed, apparently due to divisions within the Fed over this. idea.

McCollum, who represents eCurrency, a company that provides central banks with the technology to issue digital currencies, said conversations he has had with lawmakers indicate they are learning more and more about the usefulness of crypto. -currencies and thinks that will ultimately support legislation giving the Fed and Treasury the power to issue a digital dollar.

“I think we are going to see some movement soon,” he said. “There is a lot of support within the House Financial Services Committee and the Senate Banking Committee and we hope there will be legislation to update the currency laws.”

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