Regulatory changes are needed to protect the payment system and to promote stable digital currencies, says Federal Reserve Bank of New York President John Williams.
During a question-and-answer session with reporters following a speech Monday on inflation, Williams praised the new
During the session, which followed a webinar hosted by the Economic Club of New York, Williams said the new review process for so-called master account applications provides needed uniformity for the 12 regional banks,
Williams said that task had been rendered more difficult by the rise of state-chartered digital banks, financial technology firms and other nontraditional banks that have sought accounts in recent years.
"The world is changing around us, and this is something that we've been observing for years, that there's a lot of innovation based on new technologies, based on new business models, and things like that,'' he said. "From my perspective … the guidelines were important innovation for us to really try to be more clear and consistent about how we view that approach to accounts, but also it's really important that we're consistent … in terms of principles and things, across the Federal Reserve System."
Under the
Earlier this month, the Fed
On the topic of digital assets and high-profile failures of certain cryptocurrencies and stablecoins, Williams echoed the call for modernized financial regulation.
"The issue really is about having a strong regulatory framework and making sure we triple-underline stable, which means they would be secured by safe and liquid assets," he said. "Of course, there are proposals out there to do that. I think that's a very important thing that needs to be done sooner rather than later."
Williams did not endorse any specific legislation or proposal for regulating digital assets.
More broadly, Williams questioned the viability of cryptocurrencies as vehicles for retaining value and conducting commerce, noting that there are many questions left to be addressed in terms of consumer protection. Still, he said there are important advancements in terms of payment efficiency and security that shouldn't be disregarded.
Williams said some technological advancements in digital currencies could be applied to a central bank digital currency. Given the concerns about money laundering and other illicit uses of a so-called digital dollar, he said a more efficient use of the technology might be as a form of settling bank-to-bank payments and cross-border transactions between nations.
"One thing we've all learned is that the technology really opened up a lot of thinking about a lot of things in payments, not just in retail payments, but there may be more in the wholesale space about creating a settlement that's globally respected," he said. "There's a lot of thinking going on, but I don't think we're anywhere near a decision about digital currencies."
The New York Fed is currently studying the use of that type of wholesale CBDC.
During the event, Williams also weighed in changes to the Fed's monetary policy that could have an adverse impact on banks. Specifically, he addressed concerns that the
The New York Fed plays a key role in managing the Fed's balance sheet by buying and selling Treasury securities in accordance with the Federal Open Market Committee's monetary policy directives.
Williams said the reduction of the balance sheet has been smooth thus far. While the amount of reserves held by banks has fallen sharply during the past year, reserves have not been scarce. Also, he noted that should banks need liquidity, there is $2 trillion available in the Fed's overnight reverse repurchase agreement facility.
"At some point we'll get to the point where the amount of ON RRP will fall over time, and then … we'll see the question arise, is the amount of reserves sufficient to achieve our ample reserves framework that we set out," he said. "But I don't see that happening anytime soon."
