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In his speech, Barr also highlighted the need to prioritize establishing stablecoins oversight in the US. Notably, he referred to these assets as “unregulated private money.”
According to Fed Vice Chair for Supervision Michael Barr, who is also a former Ripple Labs adviser, regulation of crypto activity should be similar to overseeing traditional banks. In his first major Fed speech since taking a position on the Board of Governors of the Federal Reserve System in July, the regulatory framework adopted after the crisis requires that innovation and change are present in finance all the time.
Michael Barr Speaking on Crypto
Michael Barr believes that special attention needs to be paid to crypto-related activity. He said:
“As innovative financial products develop and grow rapidly, excitement can outrun the proper assessment of risk. As we have seen with the growth of crypto assets, in a rapidly rising and volatile market, participants may come to believe that they understand new products only to learn that they don’t, and then suffer significant losses. Crypto-asset related activity, both outside and inside supervised banks, requires oversight so that people are fully aware of the risks they face.”
Speaking of how the Fed might regulate crypto activity inside banks, Michael Barr believes that the best solution is to provide the same framework as for the traditional banks’ activity. Of course, there must be additional measures to make sure that all the relevant risks are taken into account.
“At a more basic level, we need to focus on access to fast, efficient digital payments. This is a matter both of efficiency and of fairness. The Federal Reserve has a responsibility to facilitate payments that work well for everyone, and we are committed to doing so.”
Last month, the Federal Reserve released the final guidelines for Reserve Banks to use in reviewing requests to access Federal Reserve accounts and payment services. The new guidelines included a detailed review framework to provide additional clarity on the level of due diligence and scrutiny that Reserve Banks has to apply to different types of institutions with varying degrees of risk.
Fed’s Policy on Stablecoins
In his speech, Barr also highlighted the need to prioritize establishing stablecoins oversight in the US. Notably, he referred to these assets as “unregulated private money.” Admitting the risk posed by stablecoins, Barr also said that Congress “bring stablecoins, particularly those designed to serve as a means of payment, inside the prudential regulatory perimeter.”
In the upcoming years, the Federal Reserve will also make a final decision on whether to issue a digital dollar or not. The move would help the US combat similar steps from China and other countries that say they could one day threaten the US dollar’s status as the global reserve currency.