Federal Reserve Vice Chair Barr Provides CBDC Research Updates And Advocates For Stablecoin Regulation

Vice Chair Michael Barr expresses the need to regulate stablecoins and unveils plans to develop CBDC at the Philadelphia Fed's fintech event

  • Published:
  • 12/09/2023 05:35 PM

Federal Reserve Vice Chair Barr; Image: SAUL LOEB / AFP

Federal Reserve Vice Chair Barr recently addressed the audience at the Philadelphia Fed's fintech event. In his speech, he emphasised the importance of research and supervision in the financial sector and also talked about the FedNow service. 

Barr characterised the Federal Reserve's involvement in CBDC as "basic research" geared toward supporting a potential CBDC payments infrastructure and enhancing the existing payments ecosystem, including system architecture for recording transactions and tokenisation models. This commitment to research aligns with the broader conversation around the potential of CBDCs. It reflects the central bank's recognition of the need to remain at the forefront of digital currency development to bolster financial inclusion and to ensure the security and efficiency of the U.S. monetary system.

Vice Chair Barr also highlighted the Fed's innovative approach to supervision through its novel activities program, introduced just a month prior. It allows federally supervised banks to obtain approval for novel activities involving stablecoins. Barr emphasised the alignment of this supervisory approach with the policies outlined in interpretative letters 1174 and 1179 by the Office of the Comptroller of the Currency (OCC), which emphasise strong federal oversight of stablecoins. 

Barr noted that dollar-pegged stablecoins essentially "borrow the trust of the central bank," highlighting the importance of robust regulatory controls in this space.

Expressing appreciation for current legislative efforts, Vice Chair Barr emphasised the potential risks posed by non-federally regulated stablecoins. “If such stablecoins were to become widely used as a means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system,” said Barr. 

Finally, Barr touched upon the FedNow Service, introduced in July 2023, which provides a 24-hour instant payment infrastructure. While current usage volumes are relatively small, Barr underscored that it is now up to depository institutions to make this service widely accessible. This initiative is part of the Federal Reserve's broader efforts to modernise the U.S. payments system, making it more efficient and responsive to the needs of businesses and consumers.

Vice Chair Barr's insights provide a glimpse into the Federal Reserve's proactive stance in navigating the evolving landscape of financial innovation. The Fed's resolve to develop CBDC and the bipartisan legislation on stablecoins are two of the most critical developments in the cryptocurrency space and could significantly impact the future of virtual assets.

Shashank is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash