The Federal Reserve Pushes Hard To Rein In Crypto Stablecoins

The United States Federal Reserve is planning to establish a specialized team to monitor the developments in the cryptocurrency industry. In addition, it seeks to ensure that appropriate regulations are in place to protect households and the financial system. 

The move comes amid concerns from the central bank about the risks posed by “unregulated” stablecoins. That stablecoin industry has been scrutinized in the past year and a half.

Speaking at the Peterson Institute for International Economics in Washington on March 9, Vice Chair for Supervision Michael Barr acknowledged that cryptocurrency could have a “transformative effect” on the financial system. 

However, he emphasized the need for appropriate “guardrails” to be in place to maximize the benefits of innovation.

According to Barr, the new crypto team will enable the Federal Reserve to stay current on the latest developments in the sector and learn from new innovations. An interesting comment, as the Fed isn’t one to embrace innovation or new ideas.

He stressed that regulation needs to be a “deliberative process”. It must balance fostering innovation with protecting against potential harm to households and the financial system.

One area of concern for Barr is stablecoins. That subsector of cryptocurrency aims to maintain a stable value. Other assets, such as traditional currencies or commodities, can back pegged currencies.

He noted that the assets backing many stablecoins in circulation are illiquid. Therefore, they can be difficult to liquidate for cash when needed. 

That creates a mismatch in value liquidity that could put households, businesses, and the broader economy at risk. Especially if stablecoins are widely adopted without appropriate regulation by the Federal Reserve.

Caitlin Long, the CEO of Custodia Bank, which has been consistently rejected from joining the Federal Reserve System, pointed out the irony in Barr’s comments. 

Long believes that Silvergate Bank collapsed due to liquidity issues arising from a bank run, despite being a member of the Federal Reserve System.

The post The Federal Reserve Pushes Hard To Rein In Crypto Stablecoins appeared first on CryptoMode.