US regulators are finally discussing the subject of fiat-backed digital assets, popularly known as stablecoins. According to Federal Reserve Vice Chair for Supervision Michael Barr, it’s imperative that stablecoins also fall under the supervisory oversight of the government.
Barr’s Stance on Stablecoins
“The ability of a stablecoin to be pegged to any government-issued currency makes it private money,” Barr stated.
Furthermore, these digitized fiat currencies serve as means of payment and value storage mechanisms, meaning they are borrowing the trust of the central bank.
“Stablecoins must be regulated in light of these strong indicators,” Barr emphasized.
Barr, who was appointed by President Biden as the Federal Reserve’s top bank cop, has argued that stablecoins must be regulated to avoid posing risks to financial stability or the integrity of payment systems.
Growing Belief in the Need for Regulation
Barr’s remarks tie into the growing belief amongst US regulators on the need for a strong handle on the crypto space.
In recent years, calls for appropriate oversight of the fast-growing decentralized economy have echoed through the walls of Washington DC. However, stablecoins have been the least considered.
The Federal Reserve launched a new program codenamed SR 23-7, which stands for its Novel Activities Supervision Program, to enhance the supervision of novel technologies utilized by banking institutions.
In a related press release, the Federal Reserve stated that banks would not be stopped from participating in stablecoin activities. However, they would be required to prove to the nation’s lender of last resort that the appropriate safety guards are in place before commencing.
Central Bank Digital Currency
Barr also touched on the age-long quest for a central bank digital currency (CBDC) in his address.
The central bank is currently consulting with a broad range of experts on the most robust and appropriate emerging technology that would support a sovereign-backed digital currency.
No unanimous decision had been made on whether a CBDC should be issued, but the ultimate decision lies with the US Congress and White House.
While the US has been reluctant to kickstart a CBDC program, its European counterpart is going full thrust with plans for a digital Euro.
“The governing council of the ECB has given the green light to kickstart the preparation phase,” said European Central Bank (ECB) head Christine Lagarde.
