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Federal Reserve Vice President of Supervision Michael Barr said Thursday that the central bank is enhancing its supervision of cryptocurrency-related activities and establishing a team of experts to keep track of developments in the sector.
“We’re building a dedicated team of experts who can help us learn from new developments and make sure we’re up-to-date on innovation in this sector,” Barr said while addressing the Peterson Institute for International Economics in Washington, DC.
The Fed is working with other regulators to consider “if and how certain crypto asset activity can be conducted in a manner that is consistent with safe and sound banking.”
“We are also working to provide additional clarity on our views on risks and effective risk management practices in a variety of cryptocurrency-related activities,” he said.
While highlighting the need for regulation, Barr highlighted the potential public benefits of the technology underlying cryptocurrencies. “The technology could bring new functionality or efficiencies to payment systems,” she said, noting that traditional payment systems can be slow and expensive.
Barr ended his speech with a warning about the consequences of not regulating stablecoins. “Stablecoins have the potential to scale rapidly due to network effects. An unregulated, unsupervised, deposit-like asset could create tremendous disruption, not only for financial institutions but also for individuals who might rely on the currency if it had wide adoption.
Previously, US regulators warned banks about liquidity risks related to deposits from crypto companies.