Federal Reserve calls for swift regulation of stablecoins amid market boom

Federal Reserve Vice Chair for Supervision, Michael Barr, during D.C. Fintech Week, emphasized the need for prompt regulation of stablecoins like and USDC. His remarks followed the unregulated surge of these digital currencies in the bear market and the significant profits garnered by Circle and Coinbase (NASDAQ:) from USDC. Barr’s concerns are rooted in the potential financial instability risks posed by these dollar-backed digital currencies.

Despite Tether’s market cap exceeding $85 billion, Congress has shown a slow response toward passing a regulatory framework bill for these currencies. The bill, led by House Financial Services Committee Chair Patrick McHenry (R-N.C.), faced opposition from Maxine Waters (NYSE:) (D-Calif.). Barr urged Congress to expedite this legislation to mitigate potential financial instability risks.

Barr also discussed the ongoing research on central bank digital currencies (CBDCs), which are government-issued alternatives to stablecoins. However, he confirmed that the Federal Reserve has not yet reached a decision regarding CBDCs.

Barr further underscored the potential of stablecoins to function as private money and their possible destabilizing effects on the financial network without proper regulation. He advocated for robust federal regulation that would allow the Federal Reserve to approve, regulate, and enforce ‘rules of the road’ against stablecoin issuers, a responsibility he suggested should fall on Congress.

The Vice Chairman reiterated the Fed’s commitment to taming US inflation, with a specific target of reducing it to 2%. He also confirmed that any initiative regarding a digital dollar would require explicit approval from the White House and Congress.

This comes amidst a legislative debate where Democrats support federal oversight of “private money” entities like stablecoin issuers, in contrast to Republicans who favor state-level regulation. The House Financial Services Committee has advanced a stablecoin bill, backed by some Democrats, but it still awaits a House floor vote and could be tied to a key spending bill. Senate approval is also necessary.

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