Federal Reserve Board Governor Lael Brainard described legal and regulatory challenges associated with increasingly fast rates of technology adoption and the growth in global stablecoin networks.

In a speech at the Monetary Policy, Technology and Globalisation Panel at a European Central Bank Colloquium, Ms. Brainard warned that global stablecoin networks like LIBRA could put consumers at risk if sufficient safeguards are not implemented. According to Ms. Brainard, stablecoin developers attempt to serve the same functions as "traditional money." Ms. Brainard reminded developers that payment systems "cannot be designed as they develop" like other technological applications, and that user rights and other safeguards must be incorporated.

Ms. Brainard highlighted:

  • increasing fraud and theft associated with cryptocurrencies (e.g., $1.7 billion losses in 2018 and over $4.4 billion in 2019);

  • potential cyberattacks on exchanges;

  • anti-money laundering, counterterrorist financing and know-your-customer deficiencies in two thirds of popular cryptocurrency exchanges;

  • potential risks to global financial stability as a result of liquidity, credit, market or operational risks; and

  • implications for monetary policy, particularly in smaller economies.

LIBRA was a poorly conceived project. It was a non-starter in the United States because it created multiple issues under the securities laws and the tax laws (not to mention a host of political issues). As Governor Brainard recognizes implicitly, LIBRA was not intended as a "stablecoin"; its value was linked to a variable, dynamic basket of currencies, so it would not have been stable.

The products that are genuinely powerful are true "stablecoins" that are linked to the dollar or other single currencies, and generally supported by a bank account. Or, in the alternative, the stablecoins could be based on an account maintained directly by the Federal Reserve or by other non-U.S. government central banks. That would be a potentially revolutionary change in the financial system.