Fed Governor Waller Advocates for Clear Framework Allowing Banks and Non-Banks to Issue Stablecoins

Federal Reserve Governor Christopher Waller has called for a regulatory framework that would enable both banks and non-banks to issue stablecoins, emphasizing their potential to expand the reach of the U.S. dollar. Speaking at a conference in San Francisco on February 12, Waller highlighted stablecoins as a critical innovation within the cryptocurrency ecosystem, capable of improving both retail and cross-border payments.

Stablecoins as a Key Innovation

Waller underscored the growing maturity of the stablecoin market, noting that it would benefit from a clear, focused regulatory framework to address the unique risks associated with digital currencies. He expressed his belief that such a framework should be designed to allow both banks and non-bank entities to issue regulated stablecoins.

“Stablecoins are an important innovation for the crypto ecosystem with the potential to improve retail and cross-border payments,” Waller said. “This framework should allow both non-banks and banks to issue regulated stablecoins and should consider the effects of regulation on the payments landscape, including competing payment instruments.”

A Role for the Private Sector

The Federal Reserve Governor also voiced confidence in the private sector’s ability to develop stablecoin solutions that cater to both businesses and consumers. However, he emphasized that the public sector’s role should be to establish clear, fair regulations to provide a stable and competitive environment for market participants.

“I believe in the power of the private sector to develop solutions that benefit businesses and consumers, with the job of the public sector to create a fair set of rules for market participants to operate within,” Waller remarked.

Stablecoins’ Current and Future Use Cases

Waller highlighted several current use cases for stablecoins, particularly their role in providing a safe store of value within the crypto market, facilitating access to U.S. dollars in high-inflation countries, and improving cross-border payments. Despite these advantages, he acknowledged that stablecoins’ application for retail payments remains limited, with many opportunities still unexplored.

“There are a lot of new private sector entrants looking to find ways to support the use of stablecoins for retail payments,” he said.

However, Waller also pointed out several challenges that the stablecoin market faces, including the absence of a clear regulatory framework in the U.S., fragmentation in state and international regulations, and the need for balanced regulation that ensures safety without stifling innovation. He also cautioned about the risks associated with "depegs"—instances where a stablecoin loses its peg to the underlying asset—and other potential failures in the system.

A Broader Vision for Stablecoins

Earlier this month, Waller referred to stablecoins as “synthetic dollars” that function similarly to commercial bank money. He praised their potential to enhance payment systems, suggesting that stablecoins could drive competition, reduce costs, and improve the efficiency of the payment process.

“If they can do that in a way that opens competition, broadens the reach of the payment system, drives down costs, makes things faster and cheaper, I’m all for it,” he said at the Atlantic Council on February 6.

Waller concluded his remarks by expressing hope that the stablecoin market would evolve based on the merits of its benefits to consumers and the broader economy. He reiterated that while the private sector must continue innovating to meet market needs and develop sustainable business models, the public sector’s role is to establish clear legal and regulatory frameworks that are coordinated across both state and international boundaries.

A Call for Clear Regulation to Support Innovation

In his speech, Waller reinforced the importance of having a regulatory framework that can support the growth of stablecoins while ensuring their stability and security. He emphasized that clear and targeted regulations would help foster innovation at a global scale, encouraging the development of sustainable solutions within the stablecoin market while protecting consumers and the financial system.

With the stablecoin market continuing to grow, Waller’s comments highlight the increasing need for effective regulatory measures that allow for innovation while addressing key risks, such as the stability of the digital currencies and their integration into traditional financial systems.