Federal Reserve Vice Chair for Supervision Michael Barr has voiced concerns over the digital assets which largely serve as the backbone of the crypto economy: stablecoins.
Barr said Friday at a Federal Reserve Bank of Philadelphia event that he was “deeply concerned” about stablecoin issuance without oversight from authorities.
The central bank bigwig also said that the Fed had still made “no decision” on releasing a central bank digital currency (CBDC)—centralized digital assets controlled by a central bank.
“I remain deeply concerned about stablecoin issuance without strong federal oversight. As I mentioned earlier, stablecoins are a form of money, and the ultimate source of credibility in money is the central bank,” he said.
“If non-federally regulated stablecoins were to become a widespread means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system.”
He added that it was “important to get the legislative and regulatory framework right before significant risks emerge.”
Stablecoins are considered the backbone of the crypto economy; the two biggest ones—Tether (USDT) and USD Coin (USDC)—are the third and sixth largest digital assets by market cap, respectively. They account for $82.8 billion and $26 billion, respectively, of the total $1 trillion crypto market cap, according to CoinGecko.
Such digital assets trade on blockchains like Ethereum but are pegged to a real life, stable asset. That stable asset is usually fiat money, like the U.S. dollar. That means that one dollar is held in reserve to back every token in circulation.
Stablecoins have been a hot topic in the world of U.S. regulation after a bill that aimed to regulate the assets was stalled last year.
Meanwhile, CBDCs have split lawmakers who have privacy concerns and those who want to keep up with other major economies—like China—who have already released their own digital fiat. Florida governor and presidential candidate Ron DeSantis in May introduced legislation to ban CBDCs in his state.