Michael Barr, an official at the Federal Reserve, advocates for regulating stablecoin.

Michael Barr, an official at the Federal Reserve, advocates for regulating stablecoin.

At last, US regulators are having a conversation about digital assets backed by fiat, or stablecoins.

Stablecoins must be subject to government supervision as well, according to Federal Reserve Vice Chair for Supervision Michael Barr.

When Barr introduced his concept at a conference held in Washington, DC, he made it clear that a stablecoin is private money because it can be fixed to any form of money that the government issues.

They are also using the central bank's trust by using these digitalized fiat currencies as mechanisms for value storage and as a means of payment.

In light of these encouraging signs, Barr—who was chosen by President Biden to be the head of the Federal Reserve's bank enforcement division—has maintained that stablecoins need to be governed.

Extending his position, he said that in order to prevent endangering the integrity of payment systems or financial stability, stablecoins must be subject to an appropriate prudential financial framework.

Barr continued, "We have also given the banks under our supervision the appropriate guidance on how they should interact with their supervisors when considering use of these products.".

Barr's comments are in line with the growing consensus among US regulators that a firm grasp of the cryptocurrency space is necessary.

Calls for proper regulation of the rapidly expanding decentralized economy have been echoing inside the walls of Washington, DC, in recent years. Stablecoins, however, have received the least attention.

The US central bank, known as the Fed, has examined the possible effects on the economy of a privately managed digitalized sovereign currency only very briefly thus far this year.

To that end, in August of this year, the Federal Reserve introduced a new set of regulations aimed particularly at stablecoins and cryptocurrency assets.

The FBI announced the introduction of a new program in its set of regulations under the codename SR 23-7, or its Novel Activities Supervision Program.

The Federal Reserve stated that in this new environment, it aims to improve the oversight of cutting-edge technologies used by financial institutions that fall under its jurisdiction.

These cutting-edge technologies focused on blockchain technology, cryptocurrency assets, and intricate, tech-driven alliances with non-banking organizations to provide financial services to consumers.

With respect to the goals of the SR 23-7 program, the central bank delineated that it would be risk-oriented and supplementary to the current supervisory protocols intended to govern banking operations.

The Federal Reserve said in a press release that banks would not be prohibited from taking part in stablecoin activities.

Before starting, though, they would have to demonstrate to the country's lender of last resort that the necessary safety precautions are in place.

Not Yet Made by the CBDC Decision.

The vice chair for supervision, Barr, also mentioned in his speech the long-standing search for a central bank digital currency (CBDC).

He said that in order to determine the most reliable and suitable cutting-edge technology to support a digital currency backed by a sovereign, the central bank is currently conferring with a wide range of experts.

Tokenization models for CBDCs, security, verification, and end-to-end system architecture are the main areas of focus for this research. He did, however, point out that there had not been a unanimous decision regarding the issue of a CBDC.

But according to the Fed official, the US Congress and the White House have the final say in matters of policy.

While Europe is moving full steam ahead with plans for a digital Euro, the United States has been hesitant to launch a CBDC program.

Our European unity depends on the euro. Our currency would be future-proofed by a digital euro that coexists with cash. It would be cost-free, user-friendly, and safe. We're starting the preparation stage now, but the decision to issue a digital euro will come later. Christine Lagarde (@Lagarde) October 19, 2023. pic . twitter . com/fs81p7otVW.

European Central Bank (ECB) head Christine Lagarde said in a tweet on October 19 on X (formerly Twitter) that the ECB's governing council has approved initiating the preparatory phase.

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