Global stablecoin networks – like the proposed “Libra” digital currency — should be expected to meet a high threshold of legal and regulatory safeguards before launching operations – especially given the chances of possible illicit use, harm to consumers, and outdated regulatory frameworks, a member of the Federal Reserve Board said Wednesday.
In remarks to the “The Future of Money in the Digital Age” conference of the Peterson Institute for International Economics and Princeton University’s Bendheim Center for Finance, in Washington, D.C., Gov. Lael Brainard outlined challenges for “stablecoins” such as Facebook’s proposed “Libra” digital currency. (She defined “stablecoins” as digital currencies that aim to maintain stable value by tying the digital currency to an asset or basket of assets, such as commercial bank deposits or government-issued bonds.)
She said any stablecoin project (including Libra) must address a core set of legal and regulatory challenges before it can facilitate a first payment. She said:
- Compliance with know-your-customer rules and regulations are essential to ensure stablecoins are not used for illegal activities and illicit finance;
- Issuers of stablecoins designed to facilitate consumer payments must clearly demonstrate how consumer protections would be assured;
- Defining the financial activities that the various players in the Libra ecosystem are conducting must be done in order for jurisdictions to assess whether existing regulatory and enforcement mechanisms are adequate.
In other comments, Brainard said that in addition to the Fed’s proposed “FedNow” Service (a Fed platform developed with the private sector for consumers and businesses to send and receive payments immediately and securely 24 hours a day, 7 days a week, 365 days a year), the Fed is exploring enhancements to same-day settlement of automated clearinghouse (ACH) transactions and expansion of Fedwire Funds Service and National Settlement System operating hours.
“We are working with the industry to improve the security of the payments system by, for example, increasing understanding of synthetic identity fraud and identifying a fraud classification approach to improve information sharing,” she said.