US Federal Reserve Official Says Stablecoins Could Back Dollar’s Reserve Status

(Bloomberg) -- Federal Reserve Governor Christopher Waller said he's supportive of stablecoins because they are likely to propagate the dollar's status as a reserve currency, though they need a clear set of rules and regulations.

Stablecoins are digital tokens intended to hold a steady value. Issuers typically promise to hold liquid assets, such as dollars or Treasury bills, in equal value to tokens created.

The Fed governor noted that stablecoins could be backed by any currency, but are commonly backed by dollars.

“I view stablecoins as a net addition to our payment system,” said Waller, who is chair of the Fed Board's subcommittee on payments. “You might want some regulatory rails around it to make sure the money is there” and who is checking to make sure it is fully-backed.

He said both major political parties see legislation around digital currencies “as something to go forward with.”

A bipartisan group of Senators this week introduced legislation to establish a stablecoin regulatory framework.

A Moody's Investors Service report noted that the largely unregulated asset has been subject to runs and instability.

“Stablecoins have lost their pegs to reference assets on multiple occasions, driven by market events such as the implosion of Terra UST, the FTX crash, regulatory enforcement actions and recent security breaches on DeFi protocols and attacks on stablecoin liquidity pools,” the Moody's report said.