The continuous growth of cryptocurrencies has garnered the attention of financial authorities and central institutions all over the globe. The dynamic landscape has shown stablecoins’ role as a significant player in the financial industry that offers a security blend of traditional assets and blockchain technology.
Skepticism on potential risks that are coupled with stablecoin investment still loom, and this has raised concerns among investors in the market. Among the officials who have expressed their concerns include the Bank of England, which has shown interest in central bank digital currencies (CBDC).
Federal Reserve comments on stablecoins regulation
According to Michael Barr, the Federal Reserve bank cop announced on Friday at the Economics of Payment XII Conference that stablecoins need to be regulated. This is in light of the overfishing standards of digital currencies, as Barr analyzed the cryptos pegged to the US Dollar. He commented that these offerings needed to be encompassed in regulatory developments.
Following the collapse of FTX, the United States government has sought to improve and implement regulations on digital currencies. Moreover, the US has targeted the whole crypto industry, focusing efforts on combating the predicted connections of crypto assets to criminal activities.
This has prompted the authority’s current endeavors to include stablecoins in regulatory frameworks as part of their growing changes. Crypto regulation has been the topic since the beginning of the year, following the recent collapse of the FTX crypto exchange firm that injured the whole crypto community.
This increased government attention to digital assets. Part of this proceeding is Capitol Hill’s increased attention to the digital currency industry’s policymaking. Considering the growing developments, lawmakers and other central authorities worldwide are approaching this new phase of the industry with much concern.
Sentiments on stablecoins regulation
According to Friday’s announcement by the Federal Reserve, stablecoins need to be regulated as part of the growing frameworks in the adoption of digital currencies, and Michael Barr scopes more focus to government-pegged cryptocurrencies.
According to Barr, these pegged currencies imply these assets are “borrowing trust of the central bank,” which creates a need for necessary laws and regulations. He added:
The Federal Reserve has a strong interest in ensuring that any stablecoin offerings operate within an appropriate federal prudential oversight framework, so they do not threaten financial stability or payment system integrity.
Michael Barr
Additionally, the US has commented on the growing supervision of banks using stablecoins. Barr stated his worry about assets that aren’t overseen by the federal authority.
He was also joined in the commentary of the Central Bank Digital Currency (CBDC) by Sir Jon Cunliffe, now former deputy governor of the Bank of England (BOE), as he made his last speech at the conference. Cunliffe’s 10-year term ends on October 31, and he also emphasized that no CBDC decisions had been made in England.
However, in a consultation paper published early this year, Cunliffe showed his interest in CBDCs and concluded he received over 50,000 responses. He had envisioned, “Private companies would be able to integrate and program the Digital Pound, as the settlement asset, into the services they would offer to wallet holders.” Cunliffe also added:
I would observe, if only a little tongue in cheek, that criticisms of the Digital Pound have ranged from concerns that it would […] disintermediate the banking system and threaten financial stability, to, at the same time, concerns that there would be no use for it and it would be a ‘solution looking for a problem.
Sir Jon Cunliffe
He emphasized that the BOE would issue an official decision and report on the CBDC discussion included in his consultation paper. He noted that this response would be issued in the coming months.
