Fed Senior Official Advises Central Bank Employees to Retain Minimal Cryptocurrency Holdings

Michelle Bowman, the US Fed Vice Chair for Supervision, has proposed permitting central bank personnel to possess minor amounts of cryptocurrency.

During a blockchain event in Wyoming on Tuesday, she stated that direct exposure to crypto would enhance regulators’ comprehension of the foundational technology.

“Our strategy should contemplate allowing Fed staff to hold de minimus quantities of crypto or other forms of digital assets.”

At present, the Federal Reserve prohibits its officials from owning or trading cryptocurrency. As of 2022, the Federal Open Market Committee, which is responsible for policymaking, expanded the prohibition to include crypto investments. Nevertheless, Bowman’s initiative could alter the ownership regulations for the reserve bank’s employees.

The Fed executive mentioned that while there are numerous resources available to learn about these assets, “there’s no substitute for experimenting and grasping how that ownership and transfer process operates.”

“I certainly wouldn’t trust someone to teach me to ski if they’d never put on skis, regardless of how many books and articles they have read, or even authored, about it,” she remarked at the conference.

Moreover, permitting “de minimus” crypto holdings would assist the Fed in attracting and retaining talent, she noted.

Bowman Urges Regulators to Adopt Blockchain

Michelle Bowman called on regulators to adopt emerging technologies like blockchain, or risk allowing it to circumvent the conventional banking system entirely.

She urged regulators to abandon what she characterized as an “overly cautious mindset” regarding new technologies.

“Regulators must comprehend new products and services and acknowledge the utility and necessity of adopting technology in the traditional financial sector.”

She also pointed out the risks associated with rapid changes, adding that these could be mitigated when the benefits are taken into account.

Additionally, she emphasized several promising advancements in banking, including the tokenization of assets, which could address issues in ownership transfer.

“Tokenized assets enable a transferor to pass title without altering a custodian or moving any physical security or asset,” the Fed vice chair stated.

Fed Executive Requests Industry Support for Regulatory Understanding of Crypto

Bowman has also requested assistance from the crypto sector to educate regulators about blockchain and digital assets. Furthermore, she aims to reduce regulatory scrutiny related to reputational risk, proposing the development of new guidelines.

“I would also like to encourage the industry to engage with regulators to help us understand blockchain and its potential to address other challenges,” she remarked. “Change is coming.”

If this isn’t our approach, then we risk the banking system becoming less relevant to consumers and businesses, she added.

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