Compliance » Federal Reserve Watchdog Warns of Crypto Stablecoin Risks and Calls for Strong Regulation

Federal Reserve Watchdog Warns of Crypto Stablecoin Risks and Calls for Strong Regulation


November 29, 2023

The Federal Reserve’s top bank watchdog, Michael Barr, has expressed concerns about crypto stablecoins potentially becoming private money that could destabilize the US financial system without proper regulation, according to an article by Bloomberg. Barr emphasized the need for strong federal regulation to ensure the Federal Reserve’s oversight of stablecoin issuers, including wallets. He advocated for Congress to establish rules for stablecoins.

Barr reiterated the central bank’s focus on studying the underlying technologies for a central bank-backed digital currency but emphasized that any progress would require approval from Congress and the executive branch.

Nellie Liang, the under-secretary for domestic finance at the Treasury Department, acknowledged the uncertainty regarding the role of unbacked cryptocurrencies and stablecoins in the financial system. However, she expressed optimism about the potential use of distributed ledger technology for enhancing payment and settlement efficiency.

Acting Comptroller of the Currency, Michael Hsu, distinguished between the crypto industry, prone to fraud and scams, and tokenization, which he sees as offering genuine efficiencies in solving financial problems, particularly in settlements. Hsu highlighted the risks, friction, and fees associated with current financial setups, stating that tokenization holds promise if implemented correctly.

Regarding concerns about bank stability, Hsu reassured that his agency has increased supervision to address vulnerabilities, stating that investors need not worry about issues that led to industry disruptions in March.

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