Federal Reserve Warns Stablecoins May ‘Lose Value’

Federal Reserve Warns Stablecoins May ‘Lose Value’
Federal Reserve Chairman Jerome Powell testifies in a Senate Banking Committee hearing on Capitol Hill in Washington on March 3, 2022. Tom Williams/AP Photo
Naveen Athrappully
Updated:

The increasing use of stablecoins—cryptocurrencies which try to offer price stability by pegging their market value to a reserve asset—has triggered concerns at the Federal Reserve, with the central bank’s latest financial stability report warning that these digital assets are “prone to runs.”

“Stablecoins typically aim to be convertible, at par, to dollars, but they are backed by assets that may lose value or become illiquid during stress; hence, they face redemption risks similar to those of prime and tax-exempt MMFs,” the May 9 report said (pdf), referring to money market funds.
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