Top Federal Reserve officials are so concerned about the potential danger posed by cryptocurrencies to the financial system that they discussed it during a seminal monthly closed-door meeting in July.
“Some participants cited various potential risks to financial stability including the risks associated with expanded use of cryptocurrencies,” according to minutes of the July 27-28 meeting of the Federal Open Market Committee (FOMC). This is the panel at the U.S. central bank that sets monetary policy, and the interest-rate decisions announced after its monthly meetings are the subject of much soothsaying and Kremlinology (in the figurative sense).
While officials from the Federal Reserve Board in Washington and regional Fed banks have expressed a range of views about crypto in recent months, from welcoming to wary, this appears to be the first time the topic has come up in the FOMC.
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As such, it’s another sign the industry has “arrived,” following its role holding up the $1 trillion infrastructure bill in Congress.
Released Wednesday, the minutes did not say which members of the 11-seat committee voiced these concerns.
A few officials also highlighted the need to regulate stablecoins, according to the minutes.
The officials noted the “fragility and 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,” according to the minutes.
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While the document does not elaborate, one reason FOMC members may be concerned is the investments made by issuers of stablecoins, which are supposed to be redeemable 1-for-1 with dollars, and the potential for a sell-off in the underlying assets should these outfits be hit with a high number of redemption requests simultaneously.
“There’s increasing evidence that [stablecoins] are material players in the commercial paper market and operating like unregulated money market funds—which aren’t even stable themselves,” Steven Kelly, a research associate at the Yale Program on Financial Stability, an initiative focused on understanding financial crises, told CoinDesk.
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