American Express B2B and Digital Payments Tracker November 2023 Banner

Fed’s Barr Calls for ‘Strong Federal Regulation of Stablecoins’

Federal Reserve building

A leading financial regulator in the United States is issuing a warning about stablecoins.

Michael Barr, vice chair for supervision at the Federal Reserve, told an audience at a Washington, D.C. FinTech Week event Tuesday (Nov. 7) that stablecoins could function as a form of private money that could upset the American financial system if left unregulated.

“There is interest in strong federal regulation of stablecoins that makes sure the Federal Reserve can approve, regulate and enforce against stablecoin issuers, including wallets,” said Barr, whose comments were reported by Bloomberg Tuesday.

Barr was restating the Fed’s worries about private-industry crypto tokens pegged to assets such as the American dollar and their potential to disrupt the financial sector, according to the report. He made a similar call for regulation at an event last month.

“We need a strong framework,” Barr said at Tuesday’s gathering, per the report. “It’s better if Congress can decide the rules of the road.”

The Fed is studying technologies that would support a digital currency backed by the central bank, the report said. Barr has previously said his organization would wait for permission from Congress and the White House before acting.

The report also quoted another top banking regulator, acting Comptroller of the Currency Michael Hsu, who drew the line between crypto — which he said is beset with “chicanery” — and tokenization, which he argued offers real efficiencies.

In the case of crypto, Hsu said per the report, the sector is still “replete with fraud, scams and hacks, and some of the largest players remain unregulated.”

Tokenization, on the other hand, is interested in addressing an actual problem in finance, particularly with settlements.

“There’s risk, there’s friction, there’s fees” in current setups, Hsu said, according to the report. “Tokenization holds the promise. It simplifies, if it’s done right.”

This news comes one day after regulators in the United Kingdom issued their new rules for stablecoins, with the Bank of England’s Prudential Regulation Authority (PRA) issuing a letter to the CEOs of England’s banks highlighting the risks posed by digital money deposits.

“With the emergence of multiple forms of digital money and money-like instruments, there is a risk of confusion among customers, especially retail customers, if deposit-taking entities were to offer eMoney or regulated stablecoins under the same branding as their deposits,” the authority’s letter read.