Federal Reserve Board Member Suspects CBDC Demand, Acknowledges Innovation Brought by Stablecoins, and Raises Three Major Risks!

Chris Waller, a board member of the Federal Reserve (Fed), expressed differing views on the stablecoin report released by the President's Working Group on Financial Markets (PWG) earlier this month during an online financial conference on the 17th. He believed that some of the content in the report was overly stringent. At the same time, he also emphasized the three major risks that stablecoins currently pose to the market.

Views on Stablecoins

In a stablecoin report released by PWG last week, it was mentioned that activities related to the issuance and redemption of stablecoins should only be carried out by "custodial institutions." Although Chris Waller agrees with most of the report's content, he finds the requirement too stringent.

"I disagree with the notion that stablecoin issuance should only be conducted by banks, just by virtue of responsibility. This approach and mindset would eliminate a key benefit of stablecoins ── they can serve as respectable competitors to bank organizations in the current payment environment. We should allow these innovations the opportunity to compete in a clear and fair competitive environment with other systems and providers (including banks)," said Chris Waller.

Chris Waller also mentioned that the funds of commercial banks today are not native to blockchain currencies, and stablecoins, as cryptocurrencies with lower volatility and gateways to digital asset exchanges, help fill the gaps in commercial banks in this regard.

Chris Waller believes that there is room for improvement in the U.S. payment system and that innovation and the competition it brings are beneficial to consumers. He also questions the need for the issuance of Central Bank Digital Currencies (CBDC).

Stablecoin Risks

In addition to acknowledging stablecoins, Chris Waller also mentioned three major risks associated with stablecoins.

1. Risk of Unstable Operation:

The U.S. has a long history of private currency creation, and less stable currencies may offer attractive returns to promise security. However, when these tools malfunction, there may be a risk of a run on the currency far beyond what depositors and investors can bear.

This means that stablecoin investors need to understand the risks they face, increase transparency as much as possible, and make them subject to monitoring.

2. Risk of Payment System Failure

Stablecoins share many similarities with traditional payment functions in terms of payment capabilities. If stablecoins gradually gain importance in the entire payment system, the risks of clearing, settlement, and other payment system risks they face will also increase.

Regulatory authorities should carefully consider the strict standards that the U.S. payment system applies when dealing with risks and re-examine which should or should not apply to the stablecoin environment, especially as stablecoins assume different payment responsibilities on different networks.

3. Scale Risk

Like any payment mechanism, stablecoins can demonstrate strong network effects. The more people use it, the more useful it becomes, providing greater value to each participant. However, if a stablecoin that is large enough to monopolize the entire market emerges one day, it may harm competition and reduce consumer benefits.

Other Stablecoin Participants

In addition to stablecoins themselves, Chris Waller also mentioned wallet providers and other intermediaries in the entire payment system, believing that they also need to provide appropriate safeguards and carefully consider the use of user financial transaction data.

"In the coming months, policymakers will continue to address these issues, but in the process, we should not let the novelty of stablecoins muddy the waters," said Chris Waller.