Federal Reserve Governor Michael Barr called for robust oversight of stablecoins, recalling a “long and painful history of private money created with insufficient safeguards.” His remarks came during comments addressing the Guiding and Establishing Innovation for U.S. Stablecoins Act (GENIUS Act), legislation passed last year to create a regulatory framework for stablecoins.
Barr acknowledged that the GENIUS Act could help accelerate stablecoin development but emphasized that strong implementation and supervision remain critical. He warned that stablecoins could contribute to financial instability if issuers and their reserve assets are not closely monitored. Barr noted that stablecoins must be capable of being reliably redeemed at par value, even during periods of market stress that may impact government debt markets or individual issuers.
He also pointed out that stablecoin issuers may face financial incentives to maximize returns, potentially encouraging them to take on greater risk when managing reserve assets. According to Barr, the quality and liquidity of reserve holdings are essential to ensuring the long-term stability of USD-pegged tokens.
Stablecoin Issues Continue to Delay Progress on CLARITY Act
Barr’s comments come as disagreements over stablecoin regulation continue to delay new drafts of the CLARITY Act, another digital asset bill moving through Congress. He previously stated in October that while the GENIUS Act could reduce the risk of sudden runs, federal banking agencies and state regulators must work together to close regulatory gaps and strengthen protections for users and the broader financial system.
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