The US Federal Reserve is taking steps to address the rapidly 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 President for Oversight Michael Barr acknowledged the transformative potential of cryptocurrencies, but also warned that the benefits of innovation can only be realized if security measures are put in place. suitable. The new crypto team will help the Federal Reserve “learn from new developments and make sure we stay 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 decision to create a dedicated crypto team marks an important 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 take advantage of their potential.

Barr stressed that regulation must be a “deliberative process” to ensure a balance is struck between over-regulation that “will stifle innovation” and under-regulation that “will allow substantial damage to households and the financial system.” He warned that any widespread adoption of stablecoins that are not regulated by the Federal Reserve could put households, businesses and the broader economy at risk.

Stablecoins are cryptocurrencies that are tied 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 traders. However, stablecoins are not immune to risk, and there are concerns that the assets backing many stablecoins in circulation may not be liquid. This means that it can be difficult to settle them in cash when necessary, which could lead to a “classic run on the bank.”

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, chaired by Treasury Secretary Janet Yellen, issued a report warning that stablecoins could pose a risk to financial stability if widely adopted without proper regulatory safeguards.

The move by the Federal Reserve to create a dedicated crypto team is a positive development for the cryptocurrency industry. It shows that the US central bank is taking a proactive approach to managing 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 people and businesses adopt cryptocurrencies, it is essential that regulators keep up with the pace of innovation to ensure the right regulatory frameworks are in place. This will help promote stability and public confidence in the financial system, while allowing the benefits of innovation to materialise.