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You are here: Home / Blockchain / US Federal Reserve to Create Cryptocurrency Team Amid Concerns Over Unregulated Stablecoins

Mar 10 2023

US Federal Reserve to Create Cryptocurrency Team Amid Concerns Over Unregulated Stablecoins

The US Federal Reserve is taking steps to address the fast-evolving cryptocurrency industry. The central bank has announced that it is creating a specialized team of experts to monitor developments in the cryptocurrency sector, with a particular focus on stablecoins. The move comes amid concerns that unregulated stablecoins could put households, businesses, and the broader economy at risk.

Speaking at the Peterson Institute for International Economics in Washington on March 9, Vice Chair for Supervision Michael Barr acknowledged the transformative potential of cryptocurrencies but also warned that the benefits of innovation can only be realized if appropriate guardrails are in place. The new crypto team will help the Federal Reserve “learn from new developments and make sure we’re up to date on innovation in this sector.”

The Federal Reserve’s stance is not surprising, given its mandate to promote stability and public confidence in the financial system. However, the move to create a specialized crypto team marks a significant step forward in the central bank’s approach to cryptocurrencies. It highlights the growing recognition of the importance of cryptocurrencies in the financial system and the need for appropriate regulatory frameworks to manage their risks and harness their potential.

Barr emphasized that regulation needs to be a “deliberative process” to ensure that a balance is reached between over-regulation that “will stifle innovation” and under-regulation that “will allow for substantial harm to households and the financial system.” He cautioned that any widespread adoption of stablecoins that are not regulated by the Fed could put households, businesses, and the broader economy at risk.

Stablecoins are cryptocurrencies that are pegged to a stable asset, such as the US dollar. They are designed to reduce the volatility associated with traditional cryptocurrencies, making them attractive to investors and merchants. However, stablecoins are not immune to risks, and there are concerns that the assets backing many stablecoins in circulation are illiquid. This means that it can be difficult to liquidate them for cash when needed, potentially leading to a “classic bank run.”

Barr’s comments on stablecoins echo similar concerns raised by other regulators, including the Securities and Exchange Commission (SEC) and the Financial Stability Oversight Council (FSOC). In December 2020, the FSOC, which is chaired by Treasury Secretary Janet Yellen, issued a report warning that stablecoins could pose a risk to financial stability if they become widely adopted without appropriate regulatory safeguards.

The move by the Federal Reserve to create a specialized crypto team is a positive development for the cryptocurrency industry. It demonstrates that the US central bank is taking a proactive approach to managing the risks and harnessing the potential of cryptocurrencies. The crypto team will be responsible for monitoring developments in the sector, advising the Fed on appropriate regulatory frameworks, and working with other regulators to ensure a coordinated approach.

The creation of the crypto team also highlights the growing importance of cryptocurrencies in the financial system. As more individuals and businesses adopt cryptocurrencies, it is essential that regulators keep up with the pace of innovation to ensure that appropriate regulatory frameworks are in place. This will help to promote stability and public confidence in the financial system while also enabling the benefits of innovation to be realized.

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US Federal Reserve to Create Cryptocurrency Team Amid Concerns Over Unregulated Stablecoins Republished from Source https://blockchain.news/news/us-federal-reserve-to-create-cryptocurrency-team-amid-concerns-over-unregulated-stablecoins via https://blockchain.news/RSS/

Written by bizbuildermike · Categorized: Blockchain · Tagged: blockchain

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