FED releases a report -

The US Federal Reserve recently published a research report regarding Stablecoins.
Researchers Gordon Liao and John Caramichael studied the Stablecoins ecosystem and its effects on the current Financial system and balance sheets and discussed their future.
Hearing by both the chambers of commerce is expected this month, with the presence of some crypto CEOs

The US Federal Reserve very recently released a report on Stablecoins, in which it analyzed the risks and prospects of Stablecoins, the evolving digital assets.

Researchers who examined the digital assets are Gordon Liao and John Caramichael. They studied the whole ecosystem and their effects on the intermediation of credit and the Fed’s Balance sheet. The report further identifies the possible threats it can cause to the stability of the US Federal Reserve monetary policy and how they can alleviate them.

What the FED Report says:

In comparison to other crypto assets, dollar-pegged stablecoins present safe asset qualities. When the prices of cryptocurrencies like Bitcoin rises or falls, it highly impacts the traders. And sometimes, in the case of declines, the traders go after these stablecoins. But occasionally, when the price surges above their peg, which happens during market distress, it leads to more issuance than other digital assets.

Hence the report says confidence can be shown in dollar-pegged stablecoins as digital safe during low market conditions if proper safe and liquid collaterals back them.

They believe that any instability can be dealt with by regulations like proper financial audits and sufficient requirements on the quality and liquidity of the stablecoins reserves.

The researchers deeply studied credit intermediation and how the wider adoption of the dollar-pegged digital assets could impact the balance sheets of financial institutions. And how the communication between the consumers and banks will be affected.

A two-tiered banking system can facilitate the issuance of stablecoins and standard forms of credit creation, says the report. Comparatively, a narrow bank stablecoin system could bring a lot of stability but with the prospective cost of credit disintermediation. And the report finds the former banking system less risky to the country’s financial stability.

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The Fed paper highlighted the future that the stablecoins might witness use cases beyond trading. It concluded that currently, the stablecoin uses are basically directed by trading cryptocurrencies, limited peer-to-peer payments, and De-Fi. But Stablecoins might witness further growth via their facilitation of including more payments and financial systems. And that they might play a vital role in tokenizing financial markets and have the potential to support the next-gen innovations.

The crypto industry, CBDCs and Stablecoins have been a matter of discussion for the US Federal Reserve lately. The hearings by both Chambers of commerce are scheduled for this month regarding the President’s Working Group on Financial Market Reports on Stablecoins. A number of crypto CEOs are expected to be there during the hearings.

The wider adoption and popularity of digital assets like crypto and stablecoins has grown quite well in recent years. And maybe the benefits and ease the digital assets provide have made the central institutions and authorities consider them an option. It is to see what the February hearings could bring and conclude.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing