Federal Reserve Vice Chairman Barr Addresses Stablecoin Concerns and Highlights Fed’s Role in Financial Innovation

At the Philadelphia Fed’s fintech gathering on September 8, Michael Barr, the Vice Chairman of the Federal Reserve Bank, shared his “serious reservations” about stablecoins and lauded ongoing legislative measures aimed at regulating them. Discussing the Federal Reserve’s role in financial innovation, Barr briefly touched upon the bank’s research and regulatory duties, citing the FedNow Service as an example.

Barr clarified that the Federal Reserve is actively exploring the topic of central bank digital currencies (CBDCs). His description of the research concentrated on foundational studies that could potentially underpin a CBDC payments infrastructure or offer improvements to the existing payments landscape.

Barr’s talk also highlighted aspects like ledger-based transaction recording systems and tokenization frameworks. On the same day, a FEDS Notes article focused on wholesale CBDCs, noting that tokenized technologies can coexist with current central bank settlement assets.

Last month, the Federal Reserve rolled out a special supervision program for novel financial activities, including those involving stablecoins. Barr pointed out that this supervisory approach aligns with policies set forth by the Office of the Comptroller of the Currency (OCC) in interpretive letters 1174 and 1179. He emphasized that the Federal Reserve is interested in strong regulatory oversight of stablecoins, which are implicitly backed by the trustworthiness of the central bank.

Barr warned that if stablecoins that are not federally regulated became widely adopted for payments and as a value reserve, they could present serious risks to financial stability, monetary policies, and the American payment system.

Regarding the FedNow Service, launched in July, Barr stated that although current usage levels are low, the infrastructure is in place to provide 24-hour instant payments for a wide range of banks and credit unions. He mentioned that the onus is now on these depository institutions to offer the service to their customers.

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