Michael Barr, vice president of supervision at the United States Federal Reserve (FED), says that the regulation of cryptocurrencies and stablecoins is a priority.
During his speech At the Brookings Institution in Washington DC, Michael Barr, who was appointed by current US President Joe Biden as vice chairman of the Federal Reserve System (FED) oversight committee last July, said that regulating cryptocurrencies and especially stablecoins is one of his top priorities as a regulator.
According to Barr, in order to protect financial stability, it is necessary to create an appropriate regulatory framework that allows for innovation while efficiently managing risk in the crypto industry.
“Another priority for me as Vice President is the regulation and oversight of new forms of private money created through stablecoins”, Barr said during his first speech as a member of the Federal Reserve Board of Governors.
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Although Barr has a history in the crypto industry, his current stance on crypto assets has not yet been made entirely clear. However, in his speech He hinted that crypto assets can facilitate access to the banking system and boost financial inclusion..
In 2015, Barr served as an advisor to Ripple Labs, the blockchain company developing the XRP cryptocurrency that has been in dispute with the Securities and Exchange Commission (SEC) since 2020 for allegedly violating the country's securities laws. According to the SEC, Ripple launched XRP not as a cryptocurrency but as a security.
The FED and the regulation of cryptocurrencies and stablecoins
Barr proposes integrating traditional market regulations and rules into cryptocurrencies and stablecoins. During his speech, he indicated that new forms of virtual money could destabilize the system and lead to financial runs or, alternatively, provoke great instability and cause widespread damage to the country's economy.
In light of these potential risks, the Vice President of Supervision at the FED stressed the need to take action and establish appropriate regulation for cryptocurrencies and stablecoins. In his opinion, the most advisable thing to do in this regard is to adopt the prudential regulatory framework that applies to traditional markets and adjust it to supervise the growing crypto industry.
“I believe Congress should work quickly to pass much-needed legislation to bring stablecoins, particularly those designed to serve as a means of payment, within the prudential regulatory perimeter.”
The FED vice president of supervision wants to focus on cryptocurrencies and stablecoins used as a means of payment, because these have the potential and utility to expand much more quickly and significantly. In addition, Barr wants to ensure that the activity that banks are carrying out within the crypto industry, through new services such as crypto custody, is adequately supervised and regulated to guarantee the safety of investors and the banking system.
“Banks involved in cryptocurrency-related activities must have appropriate measures in place to manage the new risks associated with such activities and ensure compliance with all relevant laws, including those relating to money laundering.”.
The digital dollar has taken a backseat
In the United States, the creation of a central bank digital currency, known as CBDC, is being displaced by the adoption of stablecoins in the country and, also, by the proximity of the FED's instant payment service, fednow, which could be available by mid-2023.
Barr said he would work to ensure the launch of this payment service, as the Fed has the commitment and responsibility to facilitate efficient and instant payments “that work well for everyone.”
A regulatory sandbox will be launched next month
In 2021, former FED Vice Chairman of Supervision Randal K. Quarles said that stablecoins were not assets to be feared and that the financial regulator should focus its efforts on regulating this sector, rather than analyzing the issuance of a digital dollar, which he called “redundant,” considering the existence and presence of stablecoins in the country.
Quarles' statements at the time were followed by The doubts that Federal Reserve Chairman Jerome Powell expressed in July 2021 about creating a CBDC for the dollar, after having reported months earlier that the development of a digital currency would be taken as a “high priority” objective by the FED.
Likewise, Senator Elizabeth Warren has been pushing for cryptocurrency regulation in the country, as a way to mitigate existing risks and prevent countries and entities from evading imposed economic sanctions. Earlier this year, Warren introduced a bill focused on the stablecoin regulation.
However, despite the refusal of some of its politicians, the United States continues to move forward in the development of a digital dollar. Recently, the Digital Dollar Project association revealed that, in October, it will launch a Regulatory sandbox to launch the digital dollar and deploy the currency in different test environments, including cross-border payments.
The association, created in partnership by Accenture and the Dólar Digital Foundation, said that the issuance of a digital dollar is a “prudent decision” for the country, given the large number of nations that are already preparing to face the challenges and take advantage of the opportunities of the digital era.
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