The vice chair for supervision at the Federal Reserve said that the central bank does not want to stifle innovation but rather to safeguard families and the financial system via laws.
In response to the central bank’s worries over “unregulated” stablecoins, the United States Federal Reserve is planning to form a “dedicated team of specialists” to monitor the cryptocurrency business, according to a Fed official.
In a March 9 speech at the Peterson Institute for International Economics in Washington, Vice Chair for Supervision Michael Barr acknowledged that cryptocurrencies could have a “transformative effect” on the financial system. Still, he added that “the benefits of innovation can only be realized if the proper safeguards are in place.”
Barr said the new crypto team would assist the Federal Reserve in “learning from new developments and keeping ahead of innovation in this industry.” He added:
“Innovation is usually rapid, but it takes time for customers to realize that new financial products may result in financial gains and losses.” Barr emphasized that regulation must be a “deliberative process” to strike a balance between excessive regulation, which “will hinder innovation,” and inadequate regulation, which “would permit severe damage to families and the financial system.”
Stablecoins were cited as a cause for worry by Barr as a subject of crypto. He said that the assets underpinning the majority of stablecoins in circulation are illiquid, meaning it may be difficult to convert them to cash when necessary.
“This mismatch between value and liquidity is the traditional formula for a bank run.” He argues that widespread use of stablecoins might put consumers, companies, and the economy in danger if not controlled by the Federal Reserve.
Caitlin Long, the chief executive officer of Custodia Bank, which has been repeatedly denied from entering the Federal Reserve System, pointed out the irony in Barr’s statements given her conviction that Silvergate Bank failed to owe to liquidity concerns resulting from a bank run.
Long also referenced the troubles confronting Silicon Valley Bank, whose shares dropped after a March 8 financial report revealed that it had sold $21 billion in assets at a loss of $1.8 billion, sparking suspicions that it was compelled to sell to free up funds.
Disclaimer: The information provided in this article is for informational purposes only and should not be construed as financial or investment advice. Cryptocurrency investments are subject to market risks, and individuals should seek professional advice before making any investment decisions.