Michelle Bowman, Vice Chair for Supervision at the U.S. Federal Reserve, suggested that the staff of the central bank can own small sums of cryptocurrency.
Speaking at a blockchain event in Wyoming, Bowman said that direct exposure to digital assets is a way for regulators to experience first-hand how cryptocurrencies operate.
The Federal Reserve currently prohibits officials from owning or trading cryptocurrencies, a restriction put in place in 2022 for all members of the Federal Open Market Committee.
Bowman said that if the Federal Reserve lifted the restriction on who could own cryptocurrencies, at least for holding “de minimus” sums, it may enhance understanding of the technology and policymaking.
Firsthand Experience Seen as Crucial for Regulators
Bowman likened the learning journey to job training, stating, “Regulators will not fully understand digital assets until they have separately been engaged in digital assets themselves“.
“I know I wouldn’t trust someone to teach me to ski if they had never been on skis,” she said, pointing out the difference between knowing and doing.
She emphasized that while there is an abundance of education available, there is no replacement for being an actual owner and user of cryptocurrencies, and so understanding the mechanisms of transfer, custody, and the process of transaction.
She said, “By giving staff that sort of space to play, it could allow the Federal Reserve to be more adaptable to a constantly-changing financial space.”
Also Read: European Central Bank’s Fabio Panetta Warns Banks of Crypto-Linked Reputational Risks
Boosting Talent and Embracing Innovation
The Fed executive drew a link to how loosening the restrictions on small amounts of crypto could help the central bank attract high-quality talent.
Bowman suggested that many professionals with considerable expertise in the area of blockchain and digital assets likely will not go to work for regulators if they have to divest from the sector whole-cloth.
She also noted regulators should move away from an “overly cautious mindset” around innovation.
If the regulators let innovations like blockchain and tokenization of assets through the regulatory process, Bowman says, they would be better able to incorporate them into the banking system rather than allowing them to circumvent it.
Also Read: Russia’s Central Bank Allows Qualified Investors To Trade Crypto-Linked Products
Call for Collaboration Between Regulators and the Crypto Industry
In her comments, Bowman made the case for the crypto industry to educate regulators.
She believed new regulatory frameworks should be made with the industry, specifically, ways to mitigate reputational risk without stifling innovation.
She warned that regulators can make the banking system less relevant to businesses and consumers going forward if they don’t understand or engage with these evolving technologies.
However, she was aware of the risks inherent with technological change, but stated they must be balanced against long-term rewards.
Central Banks Worldwide Advance Their Crypto Strategies
Bowman’s comments come as central banks in other countries enrich their engagements with digital assets.
On July 21, UnoCrypto reported that Bank Al Maghrib in Morocco announced that it had completed a draft law on the regulation of cryptocurrency, with that legislation formally ending its ban on digital assets.
Under the forthcoming legislation, Bank Al Maghrib will have the authority to legitimize digital assets, hold companies accountable for financial crime, and explore the viability of launching its own central bank digital currency (CBDC).
Additionally, we reported on July 30th that the Bank of Korea created a Cryptoassets Department under its Financial Settlement Bureau.
As part of President Lee’s crypto policy agenda, this decision showcases a broader shift in South Korea toward institutional investment in blockchain and tokenized assets.
All these developments show that central banks globally are making significant progress towards embracing crypto in every facet of their business.