- Key insight: One of the stewards of the federal payment system believes stablecoins are only useful for crypto trading, cross-border transactions and illicit finance.
- Expert quote: "If this really is a tool of circumventing banking regulations, currency controls, other local regulations, [then] it's something central banks all around the world will have to pay very close attention to." – Neel Kashkari, President of the Federal Reserve Bank of Minneapolis
- Forward Look: In his remarks, Kashkari contrasted points made by Fed Gov. Christopher Waller earlier this week about the ability for stablecoins to broaden the reach of U.S. monetary policy. The differing views highlight the ongoing debate within the central bank about how to oversee the payment technology.
Stablecoin proponents say the technology will extend the reach of the U.S. dollar around the globe, but at least one Federal Reserve official is harboring doubts about that claim.
Federal Reserve Bank of Minneapolis President Neel Kashkari, in public remarks delivered Tuesday morning, said he was skeptical about both the usefulness of stablecoins and the willingness for foreign governments to allow the proliferation of dollar-pegged digital assets in their economies.
Speaking at a conference hosted by the Bank of Korea, Kashkari said he sees only three durable uses for stablecoins: trading in crypto currencies, cross-border remittances and illicit finance. He also pushed back against the idea that U.S.-based issuers could operate freely in other markets without drawing the ire of regulators.
"If they're motivated, I think they can [regulate stablecoins]," he said of foreign governments. "This is an area worth watching. If this really is a tool of circumventing banking regulations, currency controls and other local regulations, [then] it's something central banks all around the world will have to pay very close attention to."
Kashkari's view clashes with opinions expressed by other Federal Reserve officials. Over the weekend, Fed Gov. Christopher Waller said the proliferation of stablecoins would not only enable firms to export U.S. dollars, but also U.S. monetary policy.
"It's like a fixed exchange rate system," Waller said Sunday at an economic conference in Croatia. "You are going to import US monetary costs, so it's broadening the reach of U.S. monetary policy in countries that use more stablecoins."
Kashkari, meanwhile, said that other central banks would be reluctant to give up their ability to set their own monetary policy. He added that stablecoins could also disrupt monetary policy transmission domestically, pointing to the rise of money market mutual funds as an example of how financial innovations can impede central bank policies.
"As money markets grew in America, the Fed had to invent new tools to make sure that our monetary policy decisions actually propagated out across the various forms of money markets," he said. "That could continue in the future if stablecoins grow."
Kashkari also drew another parallel between stablecoins and money market funds: the risks they pose to financial stability. Citing his tenure as assistant Treasury secretary for financial stability under Presidents George W. Bush and Barack Obama during the global financial crisis, Kashkari noted that the government had to backstop money markets funds to prevent a loss of confidence turning into a liquidity crisis.
"It's not hard to imagine scenarios where pressure would be put on central banks to go backstop stablecoins," he said. "There definitely is a systemic risk element that we need to pay attention to."
Kashkari's comments come as Congress continues to
From his position at the Minneapolis Fed, Kashkari would not be able to impact the central bank's implementation of stablecoin policies — such decisions are handled by Waller and the rest of the Board of Governors in Washington. But he could have a say over whether stablecoin issuers are granted access to master accounts in his district, should the Fed adopt a
Kashkari's outlook on stablecoins was not entirely dismissive, however. He noted that it could be used to facilitate rapid "microtransactions" that could not be processed through existing payments technologies.
Still, Kashkari said he remains doubtful that the technology will be as transformative as its biggest backers expect. He noted that similar grand promises have
"It's something we will have to watch and pay attention to, but I will confess, 17 years of watching bitcoin leaves me pretty skeptical," he said.
