US Federal Reserve Forms Crypto Task Force to Address Unregulated Stablecoins

The US Federal Reserve has announced plans to create a new team of experts to keep up with developments in the cryptocurrency industry.

The move comes amid concerns from the central bank about unregulated stablecoins. Speaking at the Peterson Institute for International Economics in Washington, Vice Chair for Supervision Michael Barr acknowledged that cryptocurrency could have a transformative effect on the financial system, but stressed the need for appropriate guardrails to be in place.

Barr explained that the new crypto team will help the Federal Reserve keep abreast of new developments in the sector and ensure that appropriate regulations are in place.

One area of cryptocurrency that Barr highlighted as a point of concern was stablecoins. He pointed out that many of the assets backing stablecoins in circulation are illiquid, which can make it difficult to liquidate them for cash when needed.

Barr believes that unless regulated by the Fed, the widespread adoption of stablecoins could put households, businesses, and the broader economy at risk.

The announcement of the new crypto team comes at a time when the use of stablecoins is becoming increasingly prevalent in the financial system.

Stablecoins are digital currencies that are pegged to a stable asset, such as the US dollar, and are designed to provide a more stable value than other cryptocurrencies. However, concerns have been raised about the lack of regulation surrounding stablecoins and the potential risks that they pose to the financial system.

Caitlin Long, the CEO of Custodia Bank, which has consistently been rejected from joining the Federal Reserve System, pointed out the irony in Barr’s comments given her belief that Silvergate Bank collapsed due to liquidity issues arising from a bank run.

Long also highlighted the current issues facing Silicon Valley Bank, whose shares plummeted after a financial update disclosed that it sold $21 billion worth of its holdings at a $1.8 billion loss, prompting fears that it was forced to sell to free up capital.