Lael Brainard, member of the Federal Reserve’s board of governors, said that the central bank is closely monitoring the extreme volatility seen in some cryptocurrencies, but does not believe they pose a current threat to US financial stability.
Speaking at New York University’s Stern School of Business, Brainard said asset valuations are stretched across a broad set of financial markets and some cryptocurrencies have witnessed extreme volatility, though overall risks to the financial system are still low.
“It is less clear how the valuations of cryptocurrencies currently could pose a threat to financial stability,” Brainard said. “For instance, it is hard to see evidence of substantial leverage used in the purchase of the cryptocurrencies, or a material degree of use in payment.
Brainard, however, said that extreme volatility of cryptocurrencies may raise important investor and consumer protection issues, and some appear especially vulnerable to money-laundering concerns. She cautioned individual investors to be aware of the “possible pitfalls of these investments and the potential for losses.”
Brainard also indicated that the central bank would pay closer attention to cryptocurrencies in the future She said,”Our assessment of these markets is limited by their opacity. Nonetheless, we will continue to study them.”
Brainard allocated the majority of her remarks to traditional asset classes. She said the risks associated with the banking sector and with traditional asset classes such as stocks and bonds are “moderate” by historical standards due to the reforms instituted since the 2008 financial crisis.
“Credit growth is robust, and banks are registering strong profitability relative to their international peers,” she said.
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