Vice Chair of the Federal Reserve Michael Barr wants to see the Federal Reserve have a significant role as regulator of stablecoins. “Private money that’s linked to the dollar basically borrows the trust of the Federal Reserve in its issuance,” said Barr, talking during the DC Fintech Week.
The Vice Chair noted that stablecoins linked to the US dollar are private money. “Private money needs to be well regulated. Private money, we’ve seen many examples throughout history can cause significant risks in the financial system,” he said.
“We think there’s very strong interest in having strong federal regulation of stablecoins that make sure that the Federal Reserve can approve stablecoin issuers, can regulate stablecoin issuers, can enforce against stablecoin issuers,” said Governor Barr. “And the set of protections around that including how you deal with wallets and making sure they’re safe and sound. All of that, I think we need a strong Federal framework for and we don’t have one of those yet.”
He added that it’s better if Congress can decide the rules of the road.
To provide context, a Stablecoin Bill is working its way through Congress. A Bill was passed by the Republican controlled House Financial Services Committee, with vocal opposition from Democrats. Barr’s comments go to the heart of the disagreements.
As currently drafted, the Bill grants extensive powers to State regulators with limited involvement from the Federal Reserve. Previously Republican whip Tom Emmer commented, “Giving the Fed more authority to completely regulate a new sector would not only overwhelm the Fed, but it’s going to kill innovation.”Additionally, Republicans accused the central bank of ‘subverting’ the Bill.
The full House has yet to vote on the Bill. Plus it needs to get through the Senate and avoid a White House veto. Currently, the Bill does not have the support of the White House, Federal Reserve or the Treasury.
Turning to central bank digital currency (CBDC), Vice Chair Barr emphasized that the Federal Reserve is purely researching CBDC. He reiterated that it would need Congressional approval if it were to consider launching a retail CBDC.
Barr did not touch on a potential wholesale CBDC. Previously, Federal Reserve Chair Powell implied Congressional approval is unnecessary because a wholesale CBDC is “an awful lot like a bank reserve.” We noted that a recent Fed paper seems to explore just how close a potential CBDC might be to bank reserves.