The Federal Reserve’s Vice Chairman, Michael Barr gave an update on Central Bank Digital Currency (CBDC) and expressed his views on stablecoin legislation at the Philadelphia Fed’s fintech event. His message sounded a cautious note surrounding the speedy adoption of blockchain technology without appropriate regulatory oversight.
Barr discussed the ongoing research efforts towards the CBDC, which he defined as basic research that might support a CBDC payments backbone or even contribute to the existing payments system. The research’s focus is on system architecture pertaining to the recording of transactions and ownership in ledgers, and tokenization models. Operations like these would be foundational to a robust CBDC, setting new standards for the world of cryptocurrencies.
The novel Activities Supervision Program, introduced only last month, was mentioned, as it allows a federally supervised bank to receive feedback on its novel activities involving stablecoins. The initiative is aligned with the guidelines set by the Office of the Comptroller of the Currency (OCC).
Barr also threw his weight behind stronger oversight of stablecoins, a policy already anticipated in the OCC’s guidelines. For Barr, a dollar-pegged stablecoin essentially “borrows the trust of the central bank.” He welcomed current legislative efforts to oversee the operation of stablecoins, expressing concern over the significant risks a widely adopted non-federally regulated stablecoin could pose to financial stability, monetary policy, and the U.S. payments system.
While the concept of CBDC brings with it opportunities for the seamless transition of financial services to the digital realm, it also grapples with questions of integration and regulation. A key concern remains balancing innovation with potentially significant risks. Strong federal oversight, as favored by Barr, may be seen as a necessity to mitigate these risks.
The availability of the FedNow Service, introduced in July, to large, regional, and community banks as well as credit unions was another point of discussion. Despite its currently small volumes, it is the responsibility of depository institutions to make the service available.
The balance between the fast-paced world of digital currency and the considered rigour necessary for stable financial systems might be a delicate tightrope to walk. However, with more research, experimentation, and careful regulation, it is conceivable that the [‘world of blockchain technology and digital currency’](a href=/?s=blockchain>) could become an integral part of our financial future. However, a slightly skeptical eye, keeping possible challenges in view, is warranted for this potential future.
Source: Cointelegraph
