Today during a speech at the Philadelphia Federal Reserve, Vice Chair Michael Barr raised the topic of stablecoin regulation. The House recently passed a Bill allowing state regulators to supervise stablecoins. While the legislation still has a long path before passage, clearly the Federal Reserve has concerns.
Currently, the New York Department of Financial Services (NYDFS) oversees all the current major stablecoins that are domiciled in the United States, including USDC, Paypal’s stablecoin, and the Gemini and Paxos stablecoins.
“Stablecoins are a form of money, and the ultimate source of credibility in money is the central bank,” said Barr. “If non-federally regulated stablecoins were to become a widespread means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system.”
“It is important to get the legislative and regulatory framework right before significant risks emerge. We appreciate the work Congress has been doing on this important issue and look forward to further engagement.”
The Vice-Chair also discussed the Fed’s current research on digital currencies. It continues to explore the basic ledger architecture for a central bank digital currency (CBDC) – as it did in Project Hamilton. Plus it is also researching digital dollar tokenization models, which he described as “the design of the digital analog to the paper bank note that permits a transfer of value between two parties without direct facilitation by the issuing central bank.”
Meanwhile, the Congressional markup of the Stablecoin Bill was an acrimonious affair. Next Thursday there is another Congressional session on a related topic: “Digital Dollar Dilemma: The Implications of a Central Bank Digital Currency and Private Sector Alternatives” the “digital dollar”.