Federal Reserve’s Barr Calls For Caution And Oversight In Stablecoin Evolution

Key Points:

• Federal Reserve’s Vice Chair for Supervision, Michael S. Barr, urges caution in digital currency development.
• The new guidance sets rules for banks handling “dollar tokens.”
• Barr voices concern over stablecoin risks without federal oversight.

In a recent statement, Federal Reserve Vice Chair for Supervision, Michael S. Barr, emphasized the need for caution and oversight in the development of central bank digital currencies (CBDCs) and stablecoins.

Barr acknowledged that the Federal Reserve still has a long way to go in issuing a CBDC, insisting that any progress must have clear support from the executive branch and legislative approval from Congress.

He also expressed deep concerns regarding the issuance of stablecoins without robust federal regulation. Stablecoins, which aim to maintain a stable value relative to a government-issued currency like the U.S. dollar, can play a significant role in the financial system.

The Vice-Chair argued that since stablecoins effectively function as private money and gain trust from the central bank when used as a means of payment and store of value, it’s vital to ensure they operate within a proper federal oversight framework.

To address this concern, the Federal Reserve recently issued guidance on the process for Fed-supervised banks to seek supervisory approval before engaging in activities related to “dollar tokens.” This guidance includes requirements for risk management, cybersecurity, and compliance with anti-money laundering laws.

While these measures apply to banks under Federal Reserve supervision, Barr stressed the importance of comprehensive federal oversight, especially for non-federally regulated stablecoins.

He highlighted the potential risks these stablecoins could pose to financial stability, monetary policy, and the U.S. payments system if they were to become widely accepted without appropriate regulation.

Barr expressed appreciation for the ongoing efforts of Congress to address these issues and called for a robust federal framework to govern all stablecoins.

As technology evolves, the Federal Reserve aims to strike a balance between fostering innovation in financial services and maintaining the safety and soundness of the banking system.

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