Fed Growing Worried of Stablecoins Risks and Fragility

The U.S. Federal Reserve is seemingly concerned about the risks of stablecoins, with potential threats to financial stability.

Minutes of the Fed’s July meeting, released earlier today, showed that members of the Federal Open Market Committee (FOMC) believe that significant structural vulnerabilities remained at entities such as prime money funds.

“New financial arrangements such as stablecoins appeared to have the same structural maturity and liquidity transformation vulnerabilities but with less transparency and an underdeveloped regulatory framework.”

Some FOMC members highlighted the fragility and the general lack of transparency associated with stablecoins, the importance of monitoring them closely, and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products.

It is worth noting that stablecoins have achieved a major milestone coming into the mainstream economic scene, after Visa announced in late March that it will allow using the U.S. Dollar Coin (USDC), a stable coin, through a pilot program in cooperation with the platform Crypto dot com, with plans for expansion with other platforms.

It is worth noting that USD Coin (USDC) is a digital stablecoin linked to the exchange rate of the American currency, without being issued by the Fed.