Fed Official: Stablecoins Pose a Threat But they could also present opportunities for innovation

By Casey Wagner, blockworks Translation: Shanoba, Golden Finance

U.S. financial leaders are taking a hard look at cryptocurrencies from a regulatory and innovation perspective.

Amid the arguments raised today: The Federal Reserve needs to increase oversight of the stablecoin ecosystem, and the Office of the Inspector General of the U.S. Currency, which oversees the U.S. banking system, could benefit from increased tokenization, officials said at the DC Fintech Week event in Washington.

It’s very important for us to understand new technologies. Michael Barr, vice chair for regulation at the Federal Reserve, said that there are obviously a lot of innovations happening in the private sector in the stablecoin space, and we want to make sure that we can use those innovations to improve the efficiency of the payment system.

Michael Hsu, Acting Administrator of the U.S. Office of the Comptroller of the Currency, agreed at a separate panel and noted that blockchain technology could be a game-changer in the settlement space. The focus of tokenization is to solve a real problem, and that problem is settlement.

However, the crypto industry as a whole is still less rosy for HSU, who he said is still “full of fraud, scams, and hacking.” In order to protect the financial system, strict central bank oversight is essential, especially in the stablecoin space.

“If a private sector entity is creating a stablecoin that is pegged to a fiat currency, where what we care about is the dollar, they are creating a private currency, and the private currency needs to be well regulated,” Barr said.

In a speech last month, Barr said: “When the asset is also used as a means of payment and a store of value, it gains the trust of the central bank.” “The Fed is very keen to ensure that any stablecoin products operate within an appropriate federal prudential regulatory framework so that they do not threaten financial stability or the integrity of the payment system.”

On the federal policy front, lawmakers on both sides seem interested in bringing stablecoin legislation to President Joe Biden.

Earlier this year, the House Financial Services Committee introduced the Payment Stablecoin Clarity Act, which gives state regulators more power when it comes to licensing issuers.

CBDCs, on the other hand, have become a more partisan issue.

Rep. Tom Emmer of Minnesota introduced the Central Bank Digital Currency Anti-Surveillance State Act in September, which would prohibit the Federal Reserve from issuing retail CBDCs. Rep. Maxine Waters, Democrat of California, was quick to criticize the text, arguing that Emer and other Republicans were preventing the dollar from maintaining its status as a global reserve currency and hindering innovation.

However, this month’s new race to avoid a government shutdown means that any action on cryptocurrency-related policies is unlikely.

Barr added on Tuesday that the Federal Reserve’s current investigation into CBDCs is in a strictly research-only phase.