Bowman urged regulators to embrace emerging technologies like blockchain, or risk allowing them to completely bypass the traditional banking system.

Federal Reserve Vice Chair Michelle Bowman suggested allowing central bank staff to hold a small amount of cryptocurrency.

On Tuesday, she stated during a blockchain event in Wyoming that direct exposure to cryptocurrency would help regulators better understand the underlying technology.

"Our approach should consider allowing Federal Reserve staff to hold a minimum amount of cryptocurrency or other types of digital assets."

Currently, the Federal Reserve does not allow its officials to hold or trade cryptocurrency. Since 2022, the decision-making Federal Open Market Committee has expanded the ban to cryptocurrency investments. However, Bowman's push may change the ownership for reserve bank employees.

The Federal Reserve executive stated that while there may be plenty of resources to understand these assets, "nothing can replace experimentation and understanding the processes of ownership and transfer."

"If someone has never skied, I certainly wouldn't believe they could teach me to ski, no matter how many books and articles they have read or even written about skiing," she stated during the conference.

Additionally, she added that allowing 'minimum' holdings of cryptocurrency would help the Federal Reserve attract and retain talent.

Bowman emphasized that regulators should embrace blockchain

Michelle Bowman urged regulators to accept emerging technologies like blockchain, or risk allowing them to completely bypass the traditional banking system.

She called on regulators to shed what she described as an 'overly cautious mindset' towards new technologies.

She also pointed out the risks associated with any rapid transformation, adding that these risks could be offset when considering the benefits.

Furthermore, she highlighted several promising developments in the banking industry, including asset tokenization, which could address issues of ownership transfer.

The Vice Chair of the Federal Reserve stated: 'Tokenized assets enable transferors to convey ownership without changing custodians or moving any physical securities or assets.'

Federal Reserve executives call on the industry to help regulators better understand cryptocurrency

Bowman further sought help from the crypto industry to educate regulators on blockchain and digital assets. Additionally, she hoped to reduce regulatory scrutiny related to reputational risks and suggested new rules.

"I also want to encourage the industry to work with regulators to help us understand blockchain and its potential to solve other problems," she noted. "Change is coming."

She added that if this isn't our approach, we risk diminishing the relevance of the banking system to consumers and businesses.