Randal K. Quarles, Governor at the U.S. Federal Reserve, says that regulators should promote, not stifle innovation in the digital asset space.

In a speech delivered at the American Enterprise Institute in Washington, D.C., Quarles frankly stated that the Fed and other bodies need to “welcome responsible innovation,” and create a regulatory environment that “not only allows for such innovation, but encourages it.”

“Digital assets, such as stablecoins, are just such an area of welcome innovation. It is clear that there is a strong demand for these assets among bank customers, and well-regulated banks should be allowed to engage in activities regarding these assets.”

Contrary to what he would like to see, Quarles said that regulators are instead making moves that could “hamper these innovations unnecessarily.” The Governor mentioned a recent report on stablecoins from the President’s Working Group on Financial Markets which he says promote unwarranted approaches to regulation such as limiting wallet providers’ affiliation with commercial entities.

“It is one thing to say that a stablecoin issuer itself must be a regulated bank—I think that is probably overkill, as there are perfectly effective ways for nonbanks to meet our legitimate regulatory concerns, but there is at least a clear relation between the existing framework of bank regulation and the specific measures that stablecoin issuers must address to operate safely.

It is, however, quite another thing to contemplate that wallet providers may need to be completely separated from commercial firms. It is not at all clear what regulatory interest would be furthered by such a limitation, which is much more restrictive than we require for non-digital assets.”

Image via Shutterstock

Quarles admits that digital assets may be “novel,” but says that regulators shouldn’t treat them differently just because of the nature of the technology. According to him, regulators need to focus on the “unique risks poses by these activities,” rather than needlessly impeding their premise.

“For that reason, I am hopeful that regulators will show reasoned constraint in the regulation of digital assets.”

At the time of writing, stablecoins are about a $150 billion market, the largest being Tether’s USDT, Circle’s USDC, and Binance’s BUSD.

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Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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