Federal Reserve officials reiterated their concerns regarding stablecoins and the need to monitor them closely at the latest Federal Open Market Committee meeting, according to the minutes of the meeting.

                By                    Yaёl Bizouati-Kennedy

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Stablecoins are cryptocurrencies intended to remain stable and have low volatility. They can be pegged to a currency or a commodity, such as gold.

According to the minutes, Fed officials said that “significant structural vulnerabilities remained at entities such as prime money funds, and new financial arrangements such as stablecoins appeared to have the same structural maturity and liquidity transformation vulnerabilities but with less transparency and an underdeveloped regulatory framework.”

Some participants cited various potential risks to financial stability, including the risks associated with expanded use of cryptocurrencies or the risks associated with collateral liquidity at central counterparties during episodes of market stress. In connection with the former set of risks, a few participants “highlighted the fragility and the general lack of transparency associated with stablecoins, the importance of monitoring them closely and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products,” according to the minutes.  

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This echoed Federal Reserve Chairman Jerome Powell’s statement last month, which called for a stronger regulatory framework for stablecoins.

“We have a tradition in this country where the public’s money is held in what is supposed to be a very safe asset. We have a pretty strong regulatory framework for bank deposits, for example, or money market funds,” Powell said, according to MarketWatch at the time. “That doesn’t exist for stablecoins, and if they’re going to be a significant part of the payments universe … then we need an appropriate framework, which frankly we don’t have.”

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Powell also said at the time that the Fed will release a whitepaper on digital currencies in September in order to begin a major public conversation and lay out the potential benefits and also the potential risks of a central bank digital currency.

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Earlier this week, Minneapolis Federal Reserve President Neel Kashkari, speaking at the Pacific Northwest Economic Regional Annual Summit in Big Sky, Mont., also voiced concerns about cryptos, saying, “cryptocurrency is 95% fraud, hype, noise and confusion,” according to MarketWatch.  

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