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US Fed Clarifies Process for Banks to Transact in Stablecoins

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State banks that are a member of the U.S. Federal Reserve system should obtain a written supervisory nonobjection from the Fed before issuing, holding or transacting in dollar tokens used to facilitate payments, such as stablecoins, the central bank said in a new supervisory letter Tuesday.

The Fed also said it is creating a new supervisory program to oversee the activities of the banks it supervises related to cryptocurrency, blockchain technology and tech-driven nonbank partnerships, with the aim of complementing its existing supervisory process and strengthening the oversight of tech-driven activities.

The new announcements, which were sent Tuesday to supervisory and examination staff at Federal Reserve banks and state member banks, comes just a day after payments giant PayPal (PYPL.O) announced it would launch its own stablecoin, a type of cryptocurrency typically pegged to a traditional asset, often the U.S. dollar.

Prior attempts by major mainstream companies to launch stablecoins have met fierce opposition from financial regulators and policymakers. Meta’s (META.O), then Facebook, 2019 plans to launch a stablecoin, Libra, were foiled after regulators raised fears it could upset global financial stability.

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