Stablecoin legislation has been long-awaited, with the latest efforts from House Financial Services Committee members aiming to finalize a bill by year’s end. However, one key proposal involves designating the Federal Reserve a significant role in regulating stablecoin issuers, which the authors argue is misguided. Stablecoins, pegged to assets like the U.S. dollar, provide a digital medium of exchange but risk instability if issuers lack the assets they claim to hold. The Fed's dual role as a regulator and competitor—creating its own digital currency—poses a conflict of interest, potentially stifling competition. Furthermore, the Fed’s regulatory focus on traditional banks does not align well with the unique mechanics of stablecoins, which serve as payment tools rather than banking services. The call is for Congress to engage with stablecoin regulation without overly empowering the Fed, advocating for clarity around asset disclosures and collateral regulations handled by more suitable entities. A Fed-centric regulatory framework could hinder the progress of private stablecoins, ultimately limiting the potential benefits of this innovation in digital payments.

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