The United States Federal Reserve is set to create a \u201cspecialized team of experts\u201d to keep up with developments in the cryptocurrency industry,\u00a0 according to a Fed official, amid concerns from the Fed of \u201cunregulated\u201d stablecoins.<\/p>\n
Speaking at the Peterson Institute for International Economics in Washington on Mar. 9, Vice Chair for Supervision Michael Barr admitted that crypto could have a \u201ctransformative effect\u201d on the financial system, but added that \u201cthe benefits of innovation can only be realized if appropriate guardrails are in place.\u201d<\/p>\n
https:\/\/www.youtube.com\/embed\/1-JgMd1HtOE<\/p>\n
According to Barr, the new crypto team will help the Federal Reserve \u201clearn from new developments and make sure we\u2019re up to date on innovation in this sector,\u201d adding: <\/p>\n
\u201cInnovation always comes quickly, but it takes time for consumers to become aware that they could both gain and lose money on new financial products.\u201d<\/p><\/blockquote>\n
Meanwhile, Barr noted that regulation needs to be a \u201cdeliberative process\u201d to ensure a balance is reached between over-regulation which \u201cwill stifle innovation\u201d and under-regulation which \u201cwill allow for substantial harm to households and the financial system\u201d<\/p>\n
Related: <\/strong>Fed signals a sharp rate hike in March due to inflation \u2014 Here\u2019s how Bitcoin traders can prepare<\/em><\/strong><\/p>\n
One subsect of crypto that Barr highlighted as a point of concern was stablecoins. <\/p>\n
He suggested that the assets backing many stablecoins in circulation are illiquid, meaning that it can be difficult to liquidate them for cash when needed, arguing: <\/p>\n
\u201cThis mismatch in value and liquidity is the recipe for a classic bank run.\u201d<\/p><\/blockquote>\n
He believes that unless regulated by the Fed, any widespread adoption of stablecoins could put households, businesses, and the broader economy at risk.<\/p>\n
Caitlin Long, the CEO of Custodia Bank \u2014 which has consistently been rejected from joining the Federal Reserve System \u2014 pointed out the irony in the comments from Barr given her belief that Silvergate Bank collapsed due to liquidity issues arising from a bank run.<\/p>\n
Long also pointed to the current issues facing Silicon Valley Bank, whose shares plummeted after a Mar. 8 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.<\/p>\n