The Federal Reserve Bank vice chairman recently spoke at the Philadelphia Fed’s fintech event on September 8th, shedding light on the central bank’s role in financial innovation. Michael Barr outlined the Federal Reserve’s focus on research and supervision, with a particular mention of the FedNow Service and its ongoing work in the area of central bank digital currency (CBDC).
Barr emphasized that the central bank is currently engaged in “basic research” that could potentially support the development of a CBDC payments infrastructure or enhance the existing payments system. In his speech, he highlighted the importance of system architecture for recording transactions and ownership in ledgers, as well as tokenization models. A publication by FEDS Notes on the same day echoed this sentiment, underscoring that the technology associated with tokenized platforms is compatible with the use of central bank money as a settlement asset.
Furthermore, Barr drew attention to the Fed’s activities supervision program, which was introduced last month. This program consists of a dedicated team of supervisors who provide feedback to federally supervised banks engaging in novel activities, including those involving stablecoins. Barr emphasized the alignment of this supervision program with the policies outlined in the interpretative letters 1174 and 1179 by the Office of the Comptroller of the Currency (OCC).
The vice chairman stressed the importance of strong federal oversight of stablecoins, as they rely on the trust of the central bank due to their dollar-pegged nature. Barr expressed his appreciation for current legislative efforts, stating that if non-federally regulated stablecoins were to become widespread as a means of payment and store of value, they could pose significant risks to financial stability, monetary policy, and the U.S. payments system.
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In terms of instant payments, Barr highlighted the FedNow Service, which was launched in July. This service aims to provide broadly accessible 24-hour instant payments to large banks, regional banks, community banks, and credit unions. While current volumes of the service are small, Barr emphasized that it is up to the depository institutions to make the service available to their customers.
Overall, Barr’s speech at the Philadelphia Fed’s fintech event shed light on the Federal Reserve’s role in financial innovation. The central bank’s focus on research and supervision, specifically in the area of CBDCs and stablecoins, demonstrates its commitment to ensuring the stability and security of the financial system. Additionally, the Fed’s efforts in providing instant payment solutions through the FedNow Service highlight its dedication to advancing the efficiency and accessibility of the payments system.
As the global landscape of finance continues to evolve, the Federal Reserve remains actively engaged in exploring new technologies and understanding their potential impact. By conducting research, providing oversight, and collaborating with other regulatory agencies, the central bank seeks to foster innovation while safeguarding the integrity of the financial system.
