Federal Reserve Vice Chair for Supervision Michael Barr is sounding the alarm on the unregulated penetration of private money in the form of fiat-backed digital tokens. Stablecoins are cryptocurrencies pegged to the U.S. dollar or any other fiat currency. Barr emphasized the urgent need for oversight by the U.S. central bank at D.C. Fintech Week.
What did Michael Barr say?
Barr remarked highlighted the Federal Reserve’s strong interest regulate, approve and supervise stablecoin issuers. Stablecoin issuers like Tether have shone brightly as crypto industry comes out of the bear market. It currently boasts a market cap of more than $85 billion.
There’s obviously a lot of innovation happening in the private sector
Tether’s competitor USDC, issued by Circle and Coinbr, has also made heavy profits for its parent companies. Consumers are turning to stablecoins for various use cases, from decentralized finance applications to cross-border payments. Despite efforts by Chair Patrick McHenry, the U.S. Congress has been slow to pass legislation to regulate stablecoins.
Barr insisted the Congress to act swiftly on the stablecoin regulation issue. He stressed the need for comprehensive stablecoin regulation to avoid potential financial instability. He noted that regulation is essential since stablecoins derive their trust from the Federal Reserve.
The Digital Dollar debate
Barr also commented on the topic of central bank digital currencies (CBDCs). He seemed worried because the Federal Reserve remains in the research phase, while countries globally have already adopted CBDCs or are in their pilot phase. Barr reiterated the need for a clear authorization from both Congress and the Fed before proceeding with a retail CBDC.
On the other hand lawmakers like Tom Emmer and Ron DeSantis have staunchly opposed the idea of a CBDC. They cited privacy concerns saying that the initiative, if launched, will only snoop on citizens.
The explosive growth of stablecoins and the ongoing debate over CBDCs underscore the critical role of regulation. Barr’s call for oversight has never been more urgent as the industry continues to innovate and expand,.