Bank-Only Stablecoins Limit Innovation, Fed’s Waller Says
(Bloomberg) -- Federal Reserve Governor Christopher Waller broke with a report from regulators earlier this month and said he disagrees with the idea that stablecoins should only be issued by banks because it would limit payment-system innovation and competition.
Earlier this month, the Treasury Department, Federal Reserve and other regulators urged lawmakers to let them police stablecoin issuers like banks with robust capital requirements and constant supervision, and said their issuance should be limited to banks.
“I disagree with the notion that stablecoin issuance can or should only be conducted by banks, simply because of the nature of the liability,” Waller said in remarks prepared for delivery at the Cleveland Fed and Office of Financial Research’s conference on financial stability Wednesday. “It serves as a viable competitor to banking organizations in their role as payment providers.”
Waller raised numerous risks and benefits with stablecoins, in particular the lack of a regulatory framework to ensure that they aren’t subject to runs and that their systems remain sound.
“Strong oversight, combined with deposit insurance and other public support that comes with it, is what makes bank deposits an acceptable and accepted form of money,” he said. “Today stablecoins lack that oversight, and its absence does create risks.”
The coins are called “stable” because they have a value tied to that of another asset, such as the U.S. dollar. Stablecoin issuers say they achieve that peg by keeping an amount in reserves that’s equivalent to their tokens in circulation, and they typically guarantee that investors can exchange their tokens for actual currency at any time. But regulators have long been concerned that that pledge could ring hollow, particularly during a crisis.
“The regulatory and supervisory framework for payment stablecoins should address the specific risks that these arrangements pose - directly, fully and narrowly,” Waller said. “It does not necessarily mean imposing the full banking rulebook, which is geared in part toward lending activities, not payments.”
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