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Top U.S. financial regulators met on Monday to discuss stablecoins, the asset-backed digital currencies that are exploding in popularity so quickly the government is struggling to keep up – and that policymakers increasingly see as a risk. for financial stability.
Stablecoins are cryptocurrencies that derive their value from a currency or a basket of underlying assets, and they have long been a subject of unique concern. When news broke in 2018 and 2019 that Facebook was planning to create a stablecoin, the Federal Reserve and other regulators took note, fearing the project could quickly gain momentum. The pressure to develop a framework to oversee them has increased further recently, as leading stablecoins including Tether and Binance have exploded in popularity.
The Treasury Department announced Friday that Secretary Janet L. Yellen will convene a meeting of the President’s financial markets task force to discuss the work of regulators on stablecoins. This group includes Jerome H. Powell, Chairman of the Federal Reserve, and the heads of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Monday’s meeting was expanded to include heads of the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
Participants at the meeting “discussed the rapid growth of stablecoins, the potential uses of stablecoins as a means of payment and the potential risks to end users, the financial system and national security,” according to a Treasury statement. after the meeting on Monday. Ms. Yellen “stressed the need to act quickly to ensure that an appropriate US regulatory framework is in place.”
Mr Powell has been particularly outspoken about the need for better monitoring of stablecoins and has repeatedly said in two congressional appearances last week that they are insufficiently regulated.
“If we’re going to have something that looks like a money market fund, or a bank deposit, a tight bank, and it grows really fast, we really should have proper regulation – and today we don’t. ‘we don’t,’ he said during his testimony before the Senate Banking Committee.
Eric Rosengren, chairman of the Federal Reserve Bank of Boston, also cautioned against Tether, saying it relies on underlying financial assets that could be leaked by investors in times of difficulty. The New York attorney general said earlier this year that Tether misled investors by claiming to be fully backed by U.S. dollars at all times.
The Treasury said the task force expects to issue recommendations in the coming months for stable coins. The group has previously warned stablecoin operators that they need to maintain adequate cash reserves to support their offers.
The Fed could also try to circumvent digital offers by offering its own alternative.
The central bank is exploring a digital currency offering, which would likely work much like the digital money you spend when you swipe your debit card. But where that debit card money ties into the commercial banking system, the central bank’s digital currency would have the direct backing of the Fed, just like physical money.
Mr Powell told lawmakers last week that not needing stablecoins could be one of the strongest arguments for a digital dollar.
But Mr Powell remains undecided on whether a central bank digital currency makes sense, he told lawmakers. The Fed plans to issue a full report on the possibility of a digital dollar, likely around September.
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