Regulators call for greater supervision of evolving payments space
Banking regulators are seeking to expand oversight of the US payments system as they grow increasingly worried about its evolution.
Speaking at a financial technology conference hosted by the Philadelphia Federal Reserve last week, top regulators from various agencies expressed concerns about the evolution of the payments system in the US and how to properly regulate it while still allowing for innovation.
The Fed's top banking regulator expressed concern about unregulated stablecoins, saying they pose a risk to financial stability, monetary policy and the US payments system without proper oversight if their value is tied to the US dollar, and it "borrows the trust" of the Fed when used as a form of payment.
"Stablecoins are a form of money, and the ultimate source of credibility in money is the central bank," Vice Chair for Supervision Michael Barr said. "There are big risks when the Federal Reserve does not have direct supervisory and regulatory authority."
Stablecoins are typically backed by a reserve of bank deposits and Treasury securities, so that their value can be pegged to fiat currencies, often US dollars, on a one-to-one basis. The business has spurred concerns about how issuers maintain a steady value of their tokens and how they manage the reserves, but it continues to attract new players. PayPal is the latest payment company that launched its own stablecoin in August.
A stablecoin bill currently making its way through Congress is likely to be passed by the House when it comes up for a vote, Patrick Toomey, a former senator who was the most senior Republican on the Senate Banking Committee, predicted during a panel discussion at the conference.
The Fed will continue to work with Congress to ensure there is a "robust federal framework" for overseeing stablecoins, Barr said.
Fed officials also discussed the possibility of central bank digital currencies (CBDCs). While stablecoins are issued by companies in the private sector, CBDCs are virtual money controlled by central banks.
The Fed is in the investigation and research phase of understanding the impact of CBDCs and the architecture of such a system but is "a long way" from development, Barr said.
The agency "has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress," Barr said.
Earlier during the conference, Fed Governor Michelle Bowman also called for more exploration of the potential issues related to CBDCs and collaboration with Congress to create one.
Source: S&P Global Market Intelligence