Stablecoins need regulation to lessen threats to stability, CBDCs still in research cycle, Fed top supervisor says

Stablecoins – described as a form of private money when pegged to a government-issued currency – need to be regulated, the Federal Reserve’s top supervisor said Friday as he reiterated that the agency has made no decision on whether to issue a central bank digital currency (CBDC), but continues to study it.

Federal Reserve Board Vice Chair for Supervision Michael Barr told the Fed’s Economics of Payments XII Conference in Washington that when an asset is used as a means of payment and a store of value – such as a stablecoin – and is pegged to a currency, “it borrows the trust of the central bank.”

He said he was repeating earlier calls he has made to regulate the digital payment method.

“So, 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 payments system integrity,” Barr said.

He also reminded that the agency has provided guidance to banks it supervises on how to engage with supervisors when considering use of stablecoins.

On CBDCs, Barr also repeated the recent remarks of other Fed governors (including Gov. Michelle Bowman) that “the Fed has made no decision on issuing a CBDC and, as Chair (Jerome H. [“Jay”]) Powell has emphasized, would only proceed with clear support from the executive branch and authorizing legislation from Congress.”

However, Barr said the agency continues to investigate CBDCs by reaching out to stakeholdes and conducting research, including in emerging technologies that might support a CBDC payments backbone.

“The research is currently focused on end-to-end system architecture, such as how ledgers that record ownership of and transactions in digital assets are maintained, secured, and verified, as well as tokenization and custody models,” he said. “This work helps us consider how we could design a digital analog to the paper bank note that permits a transfer of value between two parties without direct facilitation by the issuing central bank.”

Barr said learning from both domestic and international experimentation aids decisionmakers in understanding how the Fed can best support responsible innovation that safeguards the safety and efficiency of the U.S. payments system.

Opening Remarks: Vice Chair for Supervision Michael S. Barr