On Tuesday, Federal Reserve Deputy Chairman for Supervision Michael Barr sounded the alarm about the unregulated spread of private money backed by the US dollar.
Speaking at Fintech Week in the capital, Barr warned that the expansion of stablecoins – a type of cryptocurrency generally tied to a fiat currency such as the US dollar – needs oversight from the US central bank.
“There’s obviously a lot of innovation happening in the private sector,” he told his interviewer, Georgetown University law professor Chris Brommer, adding that the Fed has a “very strong interest” in the federal regulations that allow it to approve and oversee stablecoins. Exporters.
Waiting for legislation
With much of the cryptocurrency industry still mired in a bear market, stablecoins have provided a bright light for the beleaguered sector. Tether, the issuer of the US dollar-backed stablecoin, has seen its market capitalization rise to as much as $85 billion.
Rival US-based USDC — a stablecoin issued in partnership between Circle and Coinbase — is still earning hundreds of millions of dollars for its parent companies, even as it cedes market share to Tether.
Consumers are turning to stablecoins for use cases ranging from decentralized finance applications to cross-border payments. Despite their growing popularity, Congress has stalled on passing legislation that would create a framework for regulating dollar-backed digital currencies. While the House Financial Services Committee advanced a bill backed by Chairman Patrick McHenry (R-Calif.), its efforts to gain bipartisan support were thwarted by its former partner, Ranking Member Maxine Waters (D-CA).
In his remarks on Tuesday, Barr implored Congress to act. He noted that fiat-pegged stablecoins such as Tether and USDC operate as private money, which he said needs to be “well regulated” to avoid potential risks to financial stability.
“It borrows the Fed’s confidence in issuing it,” Barr said.
Barr has previously called for comprehensive regulation of stablecoins, including in prepared remarks delivered at an event in D.C. in late October.
Another hot issue for the Fed is central bank digital currencies, a contentious alternative to stablecoins that would be issued by the government, not private companies.
Barr has previously said that the Federal Reserve is examining the need for central bank digital currencies, though it has not yet reached a decision. On Tuesday, he reiterated that position, telling Brommer that the central bank was still in the research phase.
“We haven’t made a decision on whether it’s a good idea or not,” he said.
Although other countries have begun to adopt central bank digital currencies, the proposal has drawn criticism among lawmakers, especially within the Republican Party. Tom Emmer (R-Minn.), Republican whip and member of the House Financial Services Committee, reintroduced a bill in September to block the issuance of central bank digital currency.
On Tuesday, Barr said the Federal Reserve would not move forward with a consumer-focused central bank digital currency unless it received clear authorization from both Congress and the executive branch.