Stablecoins need to be regulated, says Federal Reserve's Barr

Stablecoins need to be regulated, top Federal Reserve official Michael Barr said on Friday in prepared remarks.

When an asset is pegged to a government-issued currency and also used as a means of payment and a store of value, it "borrows the trust of the central bank," the vice chair of supervision said at a conference in Washington D.C.

"So, the Federal Reserve has a strong interest in ensuring that any stablecoin offerings operate within an appropriate federal prudential oversight framework, so they do not threaten financial stability or payments system integrity," Barr said. 

The central bank has increased its focus on stablecoins and in August announced new guardrails to strengthen its supervision of banks involved in stablecoin activity. Barr said he was "deeply concerned" about issuing stablecoins without strong federal oversight, in remarks last month. 

Meanwhile, in Congress, lawmakers have battled over how stablecoins should be regulated in an effort to create a federal framework. 

The House Financial Services Committee made some progress when it advanced a stablecoin bill, though at the time Rep. Maxine Waters, D-Calif, criticized the bill over a provision that would allow state regulators to approve stablecoin issuance without Federal Reserve input.

Waters told Politico this week that she expects talks on that stablecoin bill to start back up. 

CBDCs research ongoing

The central bank is continuing to research central bank digital currencies, but Barr emphasized that the Federal Reserve would only go ahead with "clear support from the executive branch and authorizing legislation from Congress." 

The central bank published a report last year to examine the pros and cons of a potential CBDC. Barr said no decision has been made on whether the central bank would issue a CBDC. 

"The research is currently focused on end-to-end system architecture, such as how ledgers that record ownership of and transactions in digital assets are maintained, secured, and verified, as well as tokenization and custody models," Barr said.