Fed's Barr Warns of Stablecoin Risks, Calls for Enhanced Regulation and Reserve Scrutiny

On April 1, Federal Reserve Governor Michael Barr stated that the development of stablecoins must be built on strict regulation and warned that without effective constraints, the long history of problems caused by ‘private currencies’ could be repeated. In his remarks, Barr pointed out that although the ‘GENIUS Stablecoin Act’ has provided an initial regulatory framework for the industry, the key lies in subsequent enforcement, including ongoing monitoring of reserve assets and mechanisms to prevent illegal uses. He emphasized that stablecoins can only be truly considered ‘stable’ if they can maintain par value redemption under various market conditions. The liquidity and safety of reserve assets are particularly critical during market pressures or when the risks of the issuer themselves increase. Additionally, Barr noted that stablecoin issuers have the incentive to increase yields for profit, which may lead them to take on higher risks in reserve asset management, thereby posing a potential threat to financial stability. (The Block)