Christopher J Waller: Reflections on stablecoins and payments innovations

Speech (via webcast) by Mr Christopher J Waller, Member of the Board of Governors of the Federal Reserve System, at "Planning for Surprises, Learning from Crises" 2021 Financial Stability Conference, co-hosted by the Federal Reserve Bank of Cleveland and the Office of Financial Research, Cleveland, 17 November 2021.

The views expressed in this speech are those of the speaker and not the view of the BIS.

Central bank speech  | 
19 November 2021

The U.S. payment system is experiencing a technology-driven revolution. Shifting consumer preferences and the introduction of new products and services from a wide variety of new entities have led to advancements in payments technology. This dynamic landscape has also sparked an active policy debate-about the risks these new developments pose, how regulators should address them, and whether the government should offer an alternative of its own.

Earlier this year, I spoke about the last of these questions: whether the Fed should offer a general-purpose central bank digital currency (CBDC) to the American public. My skepticism about the need for a CBDC, which I still hold, comes in part from the real and rapid innovation taking place in payments. My argument-simple as it sounds-is that payments innovation, and the competition it brings, is good for consumers. The market and the public are telling us there is room for improvement in the U.S. payment system. We should take that message to heart and provide a safe and sound way for those improvements to occur.

My remarks today focus on "stablecoins," the highest-profile example of a new and fast-growing payments technology. Stablecoins are a type of digital asset designed to maintain a stable value relative to a national currency or other reference assets. Stablecoins have piggybacked off the recent increase in crypto-asset activity, and their market capitalization has increased almost fivefold in just the past year. Stablecoins can be thought of in two forms. Some serve as a "safe, liquid" asset in the decentralized finance, or DeFi, world of crypto-trading. Examples include Tether and USD Coin. Alternatively, there are stablecoins that are intended to serve as an instrument for retail payments between consumers and firms. Although these types of stablecoins have not taken off yet, some firms are working to assess the viability of such stablecoins as a retail payment instrument. This growth in usage of stablecoins and their potential to serve as a retail payment instrument has prompted regulatory attention, including a new report from the President's Working Group on Financial Markets (PWG). This report urges the Congress to limit the issuance of "payment stablecoins" to banks and other insured depository institutions.