The United States Federal Reserve is ready to create a “specialized team of experts” to sustain with developments within the cryptocurrency business, in accordance to a Fed official, amid concerns from the Fed of “unregulated” stablecoins.
Speaking on the Peterson Institute for International Economics in Washington on Mar. 9, Vice Chair for Supervision Michael Barr admitted that crypto may have a “transformative effect” on the monetary system, however added that “the benefits of innovation can only be realized if appropriate guardrails are in place.”
According to Barr, the new crypto team will assist the Federal Reserve “learn from new developments and make sure we’re up to date on innovation in this sector,” including:
“Innovation always comes quickly, but it takes time for consumers to become aware that they could both gain and lose money on new financial products.”
Meanwhile, Barr famous that regulation wants to be a “deliberative process” to guarantee a steadiness is reached between over-regulation which “will stifle innovation” and under-regulation which “will allow for substantial harm to households and the financial system”
Related: Fed alerts a pointy price hike in March due to inflation — Here’s how Bitcoin merchants can put together
One subsect of crypto that Barr highlighted as some extent of concern was stablecoins.
He recommended that the property backing many stablecoins in circulation are illiquid, which means that it may be troublesome to liquidate them for money when wanted, arguing:
“This mismatch in value and liquidity is the recipe for a classic bank run.”
He believes that until regulated by the Fed, any widespread adoption of stablecoins may put households, companies, and the broader financial system in danger.
Caitlin Long, the CEO of Custodia Bank — which has constantly been rejected from becoming a member of the Federal Reserve System — identified the irony within the feedback from Barr given her perception that Silvergate Bank collapsed due to liquidity points arising from a financial institution run.
UM, WASN’T THE FED #Silvergate’s REGULATOR?♀️”The banks we regulate, in contrast, are well protected from bank runs thru a robust array of supervisory requirements.”–Fed Vice Chair Supervision Michael Barr, talking this morning(!)h/t @ByKyleCampbellhttps://t.co/7UsHDKfiaC
— Caitlin Long ⚡️ (@CaitlinLong_) March 9, 2023
Long additionally pointed to the present points going through Silicon Valley Bank, whose shares plummeted after a Mar. 8 monetary replace disclosed that it bought $21 billion price of its holdings at a $1.8 billion loss, prompting fears that it was compelled to promote to unlock capital.
FRIENDLY REMINDER that, proper because the panic was occurring in Silicon Valley, the Fed’s Vice Chair for Supervision Barr mentioned in a speech: “The banks we regulate, in contrast, are well protected from bank runs thru a robust array of supervisory requirements.”https://t.co/FpPl2Qlk7x
— Caitlin Long ⚡️ (@CaitlinLong_) March 10, 2023