In a recent statement, Michael Barr, the Vice Chair of Supervision at the U.S. Federal Reserve, discussed various aspects of stablecoins, Central Bank Digital Currencies (CBDCs), and the importance of Federal oversight. Barr emphasized the need for U.S. payment systems to adhere to fundamental principles, with the Federal Reserve playing a crucial role as both supervisor and payment operator.

Barr expressed support for responsible innovation in the finance industry, highlighting the significance of maintaining the safety and efficiency of U.S. payment systems amidst ongoing advancements. He also mentioned the Federal Reserve’s active efforts in implementing a centrally monitored cryptocurrency, but clarified that a decision on CBDC issuance is pending executive branch and congressional authorization.

Regarding stablecoins, Barr expressed concerns about their issuance without robust Federal oversight. He described stablecoins pegged to government-issued currencies as a form of private money that relies on the trust of the central bank when used for payments and as a store of value.

Barr noted that the Federal Reserve has previously issued guidance for Fed-supervised banks engaging with “dollar tokens,” ensuring they have appropriate risk management and cybersecurity measures in place. He warned that if non-federally regulated stablecoins were widely adopted 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.

Looking ahead, Barr stated that the Federal Reserve will continue exploring new technologies to advance payment systems, including the ongoing study of ledger technology.