Regulators around the world are increasingly focused on the cryptocurrency industry following the multi-billion dollar collapse of the Terra/Luna stablecoin project and the U.S. is no different, with two separate bills to set regulation rails for the industry introduced in recent months.
Still, financial officials in the world’s largest economy can learn from Asia counterparts when it comes to cryptocurrency regulation and innovation, said Linda Jeng, chief regulatory officer and general counsel at the Crypto Council for Innovation. She made the comments on a panel at Forkast’s “Crypto Rising: CBDCs & Stablecoins: The Asia Perspective” live stream event.
“The U.S. has a tradition of not regulating unless there is an economic rationale to do so. So, generally, U.S. regulators will not step into a market that is nascent,” she said, “Now that crypto is finally getting a lot of attention, it means we have actually reached a threshold of importance for policymakers and regulators.”
A CBDC is a digital currency that is issued by a country’s central bank. The U.S. Federal Reserve has asked for congressional authority to begin working on such a project, and while it has not yet been given the green light, it has continued to experiment with the technology, Jeng said.
These experiments include Project Hamilton by the Federal Reserve Bank of Boston, which released its whitepaper earlier this year, exploring how to increase the throughput on blockchains. However, as blockchains record all transactions in perpetuity, such projects do involve concerns about individual privacy and broader security issues.
For instance, Australian Senator Andrew Bragg this week said he would introduce legislation to regulate Chinese banks’ use of Beijing’s CBDC, the e-CNY, in Australia, citing concerns about national security, including collection of user data.
Jeng, a former member of the Federal Reserve Board of Governors, said not all CBDCs are created equal.
“I can say pretty confidently that the Fed has no interest in collecting personal data from Americans,” she said, “That’s a huge not only responsibility but burden that the Fed would not want.”
Jeng said a Fed-issued CBDC would most likely start off as a straightforward wholesale currency, before being complimented by a privately issued stablecoin — a cryptocurrency that is backed by real-world assets, such as the U.S. dollar — running on top.
In a country that values privacy and freedom of expression, Jeng said more needed to be discussed before such a project was rolled out.
“It would be important to actually clarify what rights Americans have to control their data and thus be able to control their digital assets,” she said, “and this is an area that we actually haven’t spent that much time on.”
In the meantime, Jeng said blockchains are powerful, but they still have limitations, such as getting different blockchains to talk to each other.
“That is the holy grail of engineers right now, to figure out how to make them interoperable,” she said, adding that she thinks they will get there soon. “And when that happens, the questions become, how are we going to have cross-border payments between the different countries and reduce the frictions, improve trade?”
“These are all the benefits I’m really excited about,” she said.