There is no reason to worry about fast-growing stablecoins if “sufficient competition” exists both within the industry and outside of it, a governor of the US Federal Reserve suggested in a speech this week.
“In my view, having stablecoins scale rapidly is not a concern as long as there is sufficient competition within the stablecoin industry and from the existing banking system,” Fed governor Christopher J. Waller said during an annual financial stability conference hosted on Wednesday by the Federal Reserve Bank of Cleveland and the Office of Financial Research.
And according to the Fed governor, competition in the sector is not a problem at the moment, and is not likely to turn into one in the near future either.
“I believe that we are a long way from a monopoly in stablecoin issuance,” Waller said in the speech, adding that he sees “a lot of interest” from different players in offering stablecoins.
To this end, the central banker also said that it is important to ensure “that there are relatively few barriers to entry” for new stablecoin issuers. Moreover, he also made it clear that he disagrees with the notion that only banks should be allowed to issue stablecoins.
“[T]hat approach and mindset would eliminate a key benefit of a stablecoin arrangement—that it serves as a viable competitor to banking organizations in their role as payment providers,” Waller said.
And although the US central banker said that he can “understand the attraction of forcing a new product into an old, familiar structure,” he reiterated that innovations from outside of the banking industry must also be allowed to compete “on a clear and level playing field.”
Further, Waller, who in the past has said he is “highly sceptical” about the need for the Federal Reserve to issue its own central bank digital currency (CBDC), noted in his speech that interoperability between stablecoin networks is critical. This is especially important given the potential for strong network effects that can be achieved by a single stablecoin, which increases the risk for monopoly power.
“In this world, some form of interoperability is critical to ensure that competition allows consumers to easily move across stablecoin networks, just as they can move between different commercial bank monies or sovereign currencies,” Waller argued.
Lastly, the central banker told the audience during his virtual speech that although stablecoins are a new invention, the economics behind them is not.
“We know how to make this kind of privately issued money safe and sound, and, in designing a program of regulation and supervision to do so, we have plenty of examples to draw on,” the governor concluded.