12:05 p.m
4
min read ▪ by
Stablecoins are moving fast in Washington. But the Federal Reserve refuses to sign a blank check. Michael Barr, a member of the Board of Governors of the Fed, warns against too light regulation of assets, which could threaten the stability of the entire financial system in a crisis.
Barr Moves, Fed Wants to Tightly Regulate Stablecoins
Michael Barr, a member of the Federal Reserve Board of Governors, made his stance on stablecoins clear in a public speech in Washington on Tuesday. He took direct aim at the GENIUS Act, which is currently being debated in Congress. Without rejecting the text, he issued several warnings about the risks these assets pose to financial stability.
Barr doesn’t mince words. It reminds us of an often-forgotten historical truth: private money without solid guarantees always ends badly.
“A long and painful history of private money created without sufficient guaranteesA phrase that sums up centuries of banking crises, financial panics and resounding failures.
His main concern is the quality of reserves. A stablecoin is only stable if the issuer can redeem it at any time, even in the middle of a market storm. But Barr points to a structural problem: issuers have a direct financial interest in maximizing returns on their reserves. Which mechanically pushes them to take more risk. A ticking time bomb, according to him, if serious controls are not put in place.
” The quality and liquidity of reserve assets in stablecoins is critical to their long-term viabilityA warning to both issuers and lawmakers, there is a temptation to act too quickly.
A very tense legislative debate between the lobby and the election calendar
Barr’s remarks come in a particularly turbulent legislative context. The GENIUS bill is stalled in the Senate. And that’s not the only source of blocking: Coinbase just announced this week that it refuses to support the latest proposed compromise. Problem? Income from stablecoins.
The problem is easy to understand:
- Banks fear that a stable income-bearing coin will drain savings from the traditional system.
- Exchanges like Coinbase see this revenue as a pillar of their business model.
- Congress struggles to decide, but finds itself caught between these two powerful lobbies.
Despite several meetings held by the White House in an attempt to reach an agreement, no concrete progress has been made. Senator Cynthia Lummis even warned that the midterm election schedule could bury the reform for good unless a compromise is found quickly.
This impasse is playing out inside a politically weakened Fed. Jerome Powell, whose term expires in May, is facing increasing pressure from Donald Trump, who has tried everything to oust him.
His designated successor, Kevin Warsh, is still awaiting Senate confirmation, blocked by Republican lawmakers until legal action against Powell is concluded.
Barr’s warning is therefore not trivial. It signals that the Fed intends to play an active role in regulating stablecoins and that it will not let the market self-regulate. As Washington tussles between banks, stock markets and internal political wars, the future of the dollar is at stake, and with it, the United States’ place in tomorrow’s finances.
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I am passionate about Bitcoin, I love exploring the intricacies of blockchain and cryptocurrency and sharing my discoveries with the community. My dream is to live in a world where privacy and financial freedom are guaranteed for everyone, and I firmly believe that Bitcoin is the tool that can make this possible.
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