As the popularity of stablecoins explodes, regulators are preparing a response.

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Leading US financial regulators met on Monday to discuss stablecoins, asset-backed digital currencies that have exploded in popularity so quickly that the government is struggling to keep up and economic officials increasingly see it as a risk to financial stability. met.

Stablecoins are cryptocurrencies that derive their value from an underlying currency or basket of assets and have been a unique concern for a long time. When news broke out in 2018 and 2019 that Facebook was trying to create a stablecoin, the Federal Reserve and other regulators took note, worried that the project could quickly gain scale. With the popularity of leading stablecoins such as Tether and Binance exploding, the pressure to develop a framework to oversee them has increased recently.

Department of the Treasury announced on Friday Secretary Janet L. Yellen said she will convene the President’s Financial Markets Working Group to discuss regulators’ work on stablecoins. This group includes Federal Reserve chairman Jerome H. Powell and leaders of the Securities and Exchange Commission and the Commodity Futures Trading Commission. Monday’s meeting was expanded to include the heads of the Department of Currency Control and the Federal Deposit Insurance Corporation.

According to a Treasury statement released after the meeting on Monday, meeting attendees discussed “the rapid growth of stablecoins, potential uses of stablecoins as a means of payment, and potential risks to end users, the financial system, and national security.” Ms Yellen “underlined the need to act quickly to ensure an appropriate US regulatory framework is in place.”

Mr. Powell has been particularly blunt about the need for better regulation of stablecoins, and has said repeatedly at two conventions in the past week that they are poorly regulated.

“Just like a money market fund or bank depository, if we’re going to have something that looks like a narrow bank and it’s growing really fast, we really need to have proper regulations – and today it doesn’t,” he said during testify before Senate Banking Committee.

Eric Rosengren, chairman of the Boston Federal Reserve Bank, similarly warned about Tether, arguing that it relies on key financial assets that can experience investor runaways in times of distress. New York attorney general I said earlier this year He said that he misled investors by claiming that Tether has always been fully backed by the US dollar.

The Treasury said the working group expects to issue recommendations for stablecoins in the coming months. group before Stablecoin warns operators that they should maintain sufficient cash reserves to support their bids.

The Fed may also try to set aside digital offerings by offering its own alternative.

The central bank is exploring a digital currency proposal that will likely function. looks a lot like digital money you spend when you swipe your debit card. But where that debit card money returned to the commercial banking system, the central bank digital currency would receive support directly from the Fed, just like physical cash.

Mr. Powell told lawmakers last week that eliminating the need for stablecoins could be one of the most important steps. stronger arguments for the digital dollar.

But Mr. Powell told lawmakers he was undecided on whether a central bank digital currency would make sense. The Fed plans to release a comprehensive report on the possibility of a digital dollar, possibly around September.

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