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The Fed Is Worried the Rise of Stablecoins Could Impact Financial Stability

Nicolas Economou | NurPhoto | Getty Images

Federal Reserve officials discussed the potential threat stablecoins could have on financial stability, according to minutes of the latest Fed meeting released Wednesday afternoon.

Participants at the meeting said these "new financial arrangements" appear to have "the same structural maturity and liquidity transformation vulnerabilities" as prime money funds but with less transparency.

Specifically, they "highlighted the fragility and the general lack of transparency associated with stablecoins, the importance of monitoring them closely, and the need to develop an appropriate regulatory framework to address any risks to financial stability associated with such products," the minutes said.

Stablecoins are digital currencies tied to assets such as the U.S. dollar that don't fluctuate much in value and thus are more consistent in pricing than cryptocurrencies, which are increasingly popular but highly volatile.

Fed Chairman Jerome Powell has previously said a U.S. central bank digital currency could eliminate the need for cryptocurrencies and stablecoins such as USDC or tether.

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