Barr, a former vice chairman for supervision, currently sits at the Fed and has a keen interest in stablecoins. Michael Barr spoke about stablecoins as an authoritative voice in his statements today. Drawing attention to the audit requirements here, he also talked about the importance of the GENIUS law.
Fed stablecoin statements
Michael S. Barr has just delivered his speech titled “GENIUS Act in Action: Fundamental Questions for Stablecoin Regulation” at the time of writing. Barr, whose speech discussed stablecoin regulation within the framework of the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins Act), which became law last year, said;
“Last year, Congress passed the Guiding and Establishing National Innovation for U.S. stablecoins (GENIUS) Act, which provides stablecoin issuers with some needed clarity on how they can comply with the regulatory framework. While relevant agencies have a lot of work to do to nail down the details of the rulemaking process, reduced regulatory uncertainty could lead to faster development of stablecoins.”
Today stablecoins“It is used primarily to facilitate crypto trading activities and secondarily as a store of dollar-denominated value in some foreign jurisdictions.”
He went on to talk about the advantages of stablecoins, such as reducing the cost of transfers and speeding up the management of paperwork and processes specific to trade finance.
risks
Stating that it is risky for malicious actors to obtain stablecoins in secondary markets that do not have customer authentication requirements, Barr says that the potential for use in money laundering or terrorist financing necessitates strict controls.
“Both regulatory and technological solutions will need to be implemented to limit these risks.”
Another risk is financial stability. In particular, the quality and liquidity of reserve assets backing stablecoins can make them vulnerable. Also drawing attention to the risk of selling pressure that massive redemptions may cause on government bonds (for example, massive sales in a few days), the Fed member also talked about past bad experiences with crypto. As you know, Algo stablecoins have already disappeared completely. LUNA It was the downfall.
“Caution is warranted because private money created with inadequate safeguards (stablecoins are what we call private money today) has a long and painful history. For example, in the early 1800s, during the so-called Free Banking Era, there were competing forms of private money in the United States, often in the form of banknotes traded below face value. Bankruns and even financial panics occurred frequently. Although improvements were made with the National Banking Acts in the 1860s, financial crises continued. The particularly severe Panic Period of 1907 was characterized by a banking panic against trust companies offering deposit products backed by illiquid assets, eventually leading to the establishment of the Federal Reserve System in 1913.”
Conclusion
Michael S. Barr Supporting stablecoin(s) He says that the quality and liquidity of reserve assets are critical for long-term sustainability. It also draws attention to the risks that stablecoin issuers’ tendency to maximize the return on reserve assets by expanding their risk range as much as possible may arise in a stress environment. GENIUS was basically enacted to eliminate these vulnerabilities and other security risks.
Barr called for strong enforcement of the law, saying stablecoins could do well when combined with strict control, oversight, capital and liquidity requirements and other measures.
“GENIUS ActWhile , has made significant progress in creating a regulatory framework for stablecoins, much will depend on how federal and state regulators implement the law.”
