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The Federal Reserve\u2019s board of governors pointed to stablecoins as a potential risk to financial stability amid a volatile crypto market.<\/p>\n
In its Monetary Policy Report released on Friday, the board of governors of the Federal Reserve System said \u201cthe collapse in the value of certain stablecoins\u201d \u2014 likely referring to TerraUSD (UST) becoming unpegged from the United States dollar in May \u2014 in addition to \u201crecent strains\u201d in the digital asset market suggested \u201cstructural fragilities.\u201d The government department pointed to the President\u2019s Working Group on Financial Markets report from November 2021, in which officials said legislation was “urgently needed” to address financial risks.<\/p>\n
\u201cStablecoins that are not backed by safe and sufficiently liquid assets and are not subject to appropriate regulatory standards create risks to investors and potentially to the financial system, including susceptibility to potentially destabilizing runs,\u201d said the Fed report. \u201cThese vulnerabilities may be exacerbated by a lack of transparency regarding the riskiness and liquidity of assets backing stablecoins.\u201d<\/p>\n
The report came in advance of Fed chair Jerome Powell\u2019s testimony before the Senate Banking Committee, scheduled to begin June 22. In written remarks for a research conference sponsored by the Federal Reserve Board on Friday, Powell noted that a central bank digital currency could \u201cpotentially help maintain the dollar’s international standing.\u201d <\/p>\n
\nChair Powell delivers opening remarks at the Inaugural Conference on the International Roles of the U.S. Dollar: https:\/\/t.co\/k5kn3tnTznhttps:\/\/t.co\/EY89kTts11<\/p>\n