Vice Chair of the Fed Barr provides an update on CBDC research and promotes stablecoin legislation

At the Philadelphia Fed’s fintech event, Michael Barr voiced “strong concern” about stablecoins and expressed gratitude for legislative attempts to address them.

The vice chairman of the Federal Reserve Bank discussed the central bank’s role in financial innovation on September 8 at a fintech session hosted by the Philadelphia Federal Reserve. The quick response was oversight and research, mentioning the FedNow service in passing.

Barr outlined the “current focus” of the Fed’s study on central bank digital currencies (CBDCs), along with the usual warning that the Fed would not make any decisions without legislative authorization. A CBDC payments backbone or other uses in the current payments system might be supported by this “basic research,” as he put it.

Tokenization approaches and distributed ledger architectures were specifically highlighted by Barr. In a FEDS Notes article about commercial CBDCs that came out the same day, it was also stressed that “the technology behind tokenized platforms is not conflicting with existing central bank money functioning as a settlement asset.”

Barr brought up the Federal Reserve’s recent new activities oversight program. A federally supervised bank may get “written supervisory non-objection” for its unique actions using stablecoins with the help of the comments from the specialized team of supervisors. According to Barr, the OCC’s regulations as described in interpretive letters 1174 and 1179 permit this action.

Barr argued that the Fed would benefit from the strict federal regulation of stablecoins, as outlined in the OCC letters, since a stablecoin tied to the dollar “borrows the trust of the central bank.” He praised the ongoing legislative efforts, saying:

“Financial stability, monetary policy, and the U.S. payments system are all at danger if non-federally controlled stablecoins gain widespread use as a form of payment and store of value.”

According to Barr, the Fed’s FedNow Service, which was launched in July, has laid the groundwork for universal access to 24-hour rapid payments across a wide range of financial institutions. He further noted that although demand for the service is low at the moment, it is ultimately up to the depositories to provide it.

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