Stablecoins are moving at high speed in Washington. The Federal Reserve refuses to sign a blank check. Michael Barr, member of the Fed's board of governors, warns against too light regulation of assets which could, in the event of a crisis, threaten the stability of the entire financial system.
In brief
- Fed Governor Michael Barr calls for strict monitoring of stablecoin reserves.
- He evokes a “long and painful history of private money created without sufficient guarantees”.
- The GENIUS law, governing stablecoins, is in Barr's sights despite his support in principle.
Barr steps up to the plate, the Fed wants to closely regulate stablecoins
On Tuesday, during a public speech in Washington, Michael Barr, member of the Board of Governors of the Federal Reserve, clearly showed his position on stablecoins. He directly targeted the GENIUS law currently under debate in Congress. Without rejecting the text, he increased the warnings on the risks that these assets pose to financial stability.
Barr doesn't mince his words. It recalls an often forgotten historical truth: private money, without solid safeguards, always ends up going badly.
“ A long and painful history of private money created without sufficient guarantees “, he said. A formula that sums up centuries of banking crises, financial panics and resounding bankruptcies.
Its central concern is the quality of reserves. A stablecoin is only stable if the issuer can repay at any time, even in the middle of a market storm. However, Barr points to a structural problem: issuers have a direct financial interest in maximizing the returns on their reserves. Which mechanically pushes them to take more risks. A time bomb, according to him, if no serious control is required.
“ The quality and liquidity of stablecoin reserve assets are critical to their long-term viability “, he insisted. A warning which targets both issuers and legislators tempted to move too quickly.
A legislative debate under high tension, between lobbies and electoral calendar
Barr's comments come in a particularly turbulent legislative context. In the Senate, the GENIUS bill is stalling. And this is not the only source of blockage: Coinbase announced this week that it refused to support the latest proposed compromise. The hanging point? The yield on stablecoins.
The issue is simple to understand:
- Banks are worried that a profitable stablecoin will drain savings out of the traditional system.
- Exchanges like Coinbase see this yield as a pillar of their economic model.
- Congress tries to decide, but finds itself caught between these two powerful lobbies.
Despite several meetings organized by the White House to try to reach an agreement, no concrete progress has been recorded. Senator Cynthia Lummis has also warned that the mid-term calendar could definitively bury the reform if no compromise emerges quickly.
This standoff is taking place in a Fed that is itself politically weakened. Jerome Powell, whose term expires in May, is facing increasing pressure from Donald Trump, who has tried everything to push him out.
His designated successor, Kevin Warsh, is still awaiting Senate confirmation, blocked by elected Republicans until legal proceedings against Powell are filed.
Barr's warning is therefore not trivial. She signals that the Fed intends to play an active role in regulating stablecoins, and that it will not let the market self-regulate. While Washington is torn between banks, exchanges and internal political wars, it is the future of the dollar that is at stake, and with it, the place of the United States in tomorrow's finance.
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