A senior official of the Federal Reserve, Michael Barr says stablecoins need to be regulated. Barr stated this on Friday in prepared remarks while speaking at a conference in Washington D.C.
Barr, who is the vice chair of supervision at the Fed, said that a stablecoin is pegged to government-issued fiat currencies and so “borrows the trust of the central bank.” This makes it necessary for the Fed to be involved in its regulation.
“So, the Federal Reserve has a strong interest in ensuring that any stablecoin offerings operate within an appropriate federal prudential oversight framework, so they do not threaten financial stability or payments system integrity,” Barr said.
Stablecoins have become of much interest to the central bank for a while now, but it announced plans to monitor banks involved with stablecoins more closely in August. The bank more recently said it was “deeply concerned” about issuing stablecoins without strong federal oversight.
Also speaking, Barr said that the central bank was still carrying out research on a central bank digital currency (CBDC), but also added that there is no conclusion on whether or not a CBDC will be launched.
“The research is currently focused on end-to-end system architecture, such as how ledgers that record ownership of and transactions in digital assets are maintained, secured, and verified, as well as tokenization and custody models,” Barr said.
The Interest in Stablecoins
Stablecoins have been in existence for years, but only got the attention of regulators recently following the crash of the algorithmic stablecoin TerraUSD. Since then, regulators have called for the regulation of stablecoins.
The concerns have worsened recently, especially as the adoption of stablecoins has been on the rise. This is because they bridge the gap between the use of fiat currencies and cryptocurrencies, while they have the speed and low cost of transactions that characterize cryptocurrencies, but possess the stability of fiat currencies.
Already, lawmakers are working on a bill for the regulation of the class of assets, but the bill has not succeeded much after being criticized by some lawmakers. However, the bill which is being considered by the House Financial Services Committee will be brought back into focus soon.
Part of the bill is a provision that would allow state regulators to approve stablecoin issuance without Federal Reserve input, an idea house members like Maxine Waters were not comfortable with.
Concerns Around Cryptocurrencies in General
Stablecoins aren’t the only class of cryptocurrencies that have come under scrutiny. The securities and exchange commission (SEC) has cracked down massively on the crypto industry as a whole, especially this year.
As a result, crypto assets in general are now being considered for regulation since the SEC does not have any clear rules for the industry to follow. This is also under consideration by the lawmakers and hopefully there will be regulation not just for stablecoins but for the entire crypto industry.
When the regulation finally comes, it will hopefully increase confidence and interest in the crypto industry since investors have been skeptical about investing in crypto assets because it is unregulated up to this point.
There have also been debates between Republican and Democrat lawmakers about the status of cryptocurrencies, the controversies may soon come to an end with proper regulation for the industry.
