Fed's Barr Warns of Stablecoin Risks, Emphasizes Need for Enhanced Regulation and Reserve Scrutiny

Odaily News: Federal Reserve Governor Michael Barr stated that stablecoin development must be built upon strict regulation, warning that without effective constraints, it could repeat the "long history of problems with private money."

In his remarks, Barr pointed out that while the "GENIUS Stablecoin Bill" has provided an initial regulatory framework for the industry, the key lies in subsequent implementation, including ongoing monitoring of reserve assets and mechanisms to prevent illicit use.

He emphasized that stablecoins can only truly be considered "stable" if they can be redeemed at par value under all market conditions. The liquidity and security of reserve assets are particularly crucial during market stress or when issuer risks intensify.

Furthermore, Barr noted that stablecoin issuers have an incentive to increase profits by boosting yields, which may lead them to take on higher risks in managing reserve assets, thereby posing a potential threat to financial stability.

Currently, stablecoin regulation remains a significant point of contention in U.S. crypto legislation and has, to some extent, impacted the progress of related bills.