In a recent speech at a fintech conference held at the Federal Reserve Bank of Philadelphia, Michael Barr, a prominent official at the US Federal Reserve, raised concerns about the growing use of unregulated stablecoins that are pegged to the US dollar. Barr, who serves as the vice chair for supervision at the central bank, believes that if stablecoins become widely adopted, they could potentially replace the US dollar.

According to Barr, digital assets such as stablecoins present significant risks to financial stability, monetary policy, and the US payments system. Stablecoins, including popular ones like USDT and USDC, have become integral to the crypto market since the introduction of the first stablecoin in 2014.

For instance, Tether Holdings’ USDT, with a market capitalization exceeding $83 billion, ranks as the third most valuable cryptocurrency, following Bitcoin and Ethereum. Similarly, USDC, the second most valuable stablecoin, experienced a temporary depegging in March after the collapse of the Silicon Valley Bank (SVB). Nonetheless, it remains among the top 10 cryptocurrencies and surpasses the value of projects like Cardano and Tron.

While stablecoins are typically built on public blockchains like Ethereum and Polygon, their issuance is carried out by private entities that are not directly regulated by the Federal Reserve or any other global regulator. This decentralized nature allows stablecoin issuers to mint more coins based on market demand, a practice that greatly concerns Barr.

To address this issue, Barr proposed that stablecoin issuers tracking the value of the US dollar should be placed under the direct supervision and authority of the Federal Reserve. Similar to how the central bank provides oversight to conventional banks, bringing stablecoins under its purview would enable the central bank to effectively control these issuers.

The central bank’s supervision of stablecoin issuers would help mitigate potential risks, ensuring the stability of the US financial system, safeguarding monetary policy, and protecting the integrity of the US payments system.

Disclaimer: The information provided in this research report is for informational purposes only and should not be interpreted as financial or investment advice. The NFT and cryptocurrency market is highly volatile, and readers should conduct thorough research before making any investment decisions.