The Federal Reserve's
Fed Vice Chair for Supervision Michael Barr, speaking at the Federal Reserve Bank of Philadelphia's annual Fintech Conference on Friday, said he is "deeply concerned" about the issuance of dollar-based digital tokens, also known as stablecoins.
"Stablecoins are a form of money, and the ultimate source of credibility in money is the central bank," Barr said. "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."
Barr's remarks come one day after fellow Fed Gov. Michelle Bowman called for regulators to
On Friday, Barr called for the creation of a legislative and regulatory framework for the treatment of stablecoins "before significant risks emerge." He added that the Fed will continue working with Congress to craft legislation around the matter.
Stablecoin legislation has moved through Congress in
For much of the past year, the Fed has sought to manage the banking sector's engagement with digital assets through
But in his speech Friday, Barr noted that the Fed's ability to oversee digital asset activities were limited to the banks it supervised, adding that significant financial stability risks could build up outside the regulatory perimeter.
"The guidance only covers the activities of the banks over which we have supervisory authority. But there are big risks when the Federal Reserve does not have direct supervisory and regulatory authority," he said. "I remain deeply concerned about stablecoin issuance without strong federal oversight."
Barr's assertion that the Fed is the rightful steward of stablecoin oversight
"The central bank is and will always be the main source of trust behind money," Powell said at the time. "Stablecoins essentially borrow that trust from the underlying issuer, and in many cases, these are dollar stablecoins, so they're really borrowing that trust."
During his speech, Barr also delved into payments innovations, such as the Fed's recently launched instant payment system, FedNow, and the potential creation of a central bank digital currency, or CBDC.
Barr said FedNow will enable the creation of various real-time transaction products, which could make transactions faster, cheaper and more broadly available for consumers. But, he noted, such developments will ultimately be driven by the private sector.
"We have provided the rails," Barr said. "Innovation by private depository institutions will determine whether these services reach a broad range of households and businesses."
On the matter of CBDCs, Barr said it was important that the Fed familiarize itself with the potential benefits and pitfalls of all forms of digital currency. He said the central bank's research efforts are currently focused on system architecture, including how digital ledgers that track the movement of digital currencies are maintained, secured and verified.
Barr emphasized that the Fed is "a long way" from rolling out a digital currency of its own and it would not do so unilaterally.
"The Federal Reserve has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress," he said.
