Stablecoins and federal reserve

United States Federal Reserve has disclosed that stablecoins could serve as a new medium of exchange with global coverage.

Stablecoins are in the loop. The Federal Reserve made this appraisal in its most recent Financial Stability Report. This sudden positive assessment by the US federal reserve is surprising.

Stablecoins are usually backed by fiat, exchange-traded goods, and even other cryptocurrencies. Their design is all about reducing volatility. Thus, they stand out in the crypto space. Examples of such coins include Tether.

The Federal Reserve stated that dollar-pegged cryptocurrencies could supplement the already existing payment systems. The report, however, didn’t reveal the name of any particular stablecoin.

Regulation necessary

The US Federal Reserve has shown much optimism about stablecoins. However, it also emphasized that they will require proper regulation. Without it, negative outcomes are almost inevitable.

Thus, the report pointed out that an unregulated global stablecoin “could pose risks to financial stability.” It also added that without proper risk management and effective regulation they could result in a complete meltdown of the global economy. Specifically, in  widespread liquidation. This will definitely affect a lot of existing sectors.

The report also advised that all issuers of stablecoin should put policies in place to deter fraudulent activities. Activities like money laundering, terrorism, corruption etc

The report, however, seems to be directed towards stablecoins with global relevance.

The US Reserve also briefly mentioned Facebook’s controversial Libra. It referred to the stablecoin as one with “the potential to rapidly achieve adoption.”  

The US Federal Reserve might be looking into creating a CBDC. It is highly likely that China’s plan to introduce digital yuan has influenced the decision. After all, it seems like all governments are starting to jump on board the crypto/blockchain train.

China also has plans in place to launch its own digital currency. Concurrently, US Congress recently revealed that it was looking to regulate stablecoins as securities.

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