Fed Releases Report on the Risks and Benefits of Stablecoins

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The Federal Reserve of the United States (Fed) has published a report that examines the threats and impact of stablecoins on US monetary policy and the credit system.

The researchers have noted the “digital safe haven currency during periods of crypto market distress” and the risks that may arise in the conditions of their mass conversion to fiat.

The specialists have recommended conducting an audit and establishing requirements for liquidity and quality of reserves to mitigate risks. In support of their position, they mentioned a $41 million fine to Tether Limited due to incorrect USDT collateral data.

The document mentions the impact of the popularization of stablecoins on the balance sheets of financial institutions and the interaction between banks and consumers.

A comparison is made between the option of cash tokenization and their provision with full reserves at the Fed with two-level mediation. In it, “stablecoins” are backed by deposits held by issuers in commercial banks.

The first scenario “may provide the greatest stability, but at the expense of eliminating credit intermediaries.” The second one is able to support both the issuance of stablecoins and keep the banking system in its current form with less threat to financial stability in the United States, the experts emphasized.

A banking system with 100% cash reserves will create guarantees that the stablecoin peg will not change.