Payment Stablecoins Should be Regulated for Safety, FDIC Chair Says : Broadband Breakfast

WASHINGTON, October 20, 2022 – Martin Grunbergacting chairman of the Federal Deposit Insurance Corporation, argued on Thursday that payments stablecoins are safer if they are subject to “prudential” — or risk-mitigating — regulation.

At a web event hosted by the Brookings Institution, Gruenberg outlined the risks associated with cryptocurrencies — including market volatility and fraudulent behavior — and floated the launch of “payment stablecoins,” which he said could be used for retail transactions.

“There has been extensive discussion and public debate about the benefits and risks associated with developing a payment stablecoin for domestic and international cross-border payment purposes that is subject to prudential regulation,” Gruenberg said. “The key benefit to developing a payment stablecoin is the ability to offer 24/7 low-cost, real-time payments for consumers and businesses.”

The value of stablecoins, a type of cryptocurrency designed to reduce price volatility, is tied to a reserve asset like the US dollar. Stablecoins were designed to trade between other cryptocurrencies without having to “exchange to and from fiat currencies,” Grünberg said. Panelists at previous events argued for the potential ability of stablecoins to improve financial inclusion in the country and their importance in the tech race with China.

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Part of the criteria for such stablecoins, Gruenberg said, is that they be backed dollar-for-dollar by high-quality, short-term US Treasury assets and that the transactions are conducted on well-regulated licensed ledger systems.

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An approved ledger system allows moderators to regulate who can participate in the network. In addition, the participants are not anonymous, which Grünberg says is important for the security of stablecoin payments. “The ability to know all parties … engaging in stablecoin payment activity is critical to ensuring compliance with anti-money laundering and countering terrorist financing regulations and deterring sanctions evasion,” he argued.

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Due to the novel and complex nature of cryptocurrency, Gruenberg said the FDIC should approach its regulation with caution and care. The FDIC issued a letter to its regulated banks earlier this year asking for information about their cryptocurrency activities, and Gruenberg said working with the banks will continue.

“There are important risks and policy concerns that need to be considered before developing a stablecoin payment system,” he said.

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