Fed Reserve’s Barr outlines stablecoin benefits and risks

Investing.com -- Federal Reserve Governor Michael Barr highlighted both the potential benefits and significant risks of stablecoins during his speech at the 2025 D.C. Fintech Week on Thursday.

Barr noted that stablecoins could improve cross-border payments by reducing costs and increasing efficiency in areas like remittances, trade finance, and multinational cash management. He emphasized that these digital assets could particularly benefit lower-income individuals who are often underserved by traditional financial systems.

"Payments innovation is especially important for lower-income individuals who are often underserved by the financial system and lack financial slack," Barr said.

The Fed governor acknowledged that the recently passed bipartisan GENIUS Act provides some regulatory clarity for stablecoin issuers, which could accelerate development of these digital assets and related services.

However, Barr expressed caution about several risks, drawing parallels to historical private money creation failures. He pointed to vulnerabilities in the current unregulated stablecoin market, noting that stablecoins share three key features that make them susceptible to runs: "redemption on demand, at par, and backed by noncash assets."

Barr identified several gaps in the GENIUS Act that require careful regulatory implementation. These include permissible reserve assets that aren’t immune to stress, potential regulatory arbitrage due to multiple supervising agencies, and insufficient consumer protections.

"The act lacks sufficient protections to prevent the mixing of bank-like activities and commerce, which could lead to an increase of economic concentration and create competitive distortions—potentially to the detriment of consumers," Barr warned.

He also discussed tokenized deposits as an alternative that operates within an established regulatory framework, providing greater stability through deposit insurance and access to the Federal Reserve’s discount window.

Barr concluded that while stablecoins have potential to improve payment system efficiency, particularly for cross-border transactions, their success depends on creating strong regulatory guardrails that protect consumers and the broader financial system.

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