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<ul class="list-ic vertical">
 <li>1 <a>The study concludes that digital currencies like stablecoins and CBDCs with higher interest rates would attract more investors.</a></li>
 <li>2 <a>Stablecoins have limitations, such as censorship of transactions and compliance requirements for USD custodians.</a></li>
</ul>
There is news from dailycoin.com and cryptopolitan.com that there has been a meeting behind closed doors with House Democrats, where the Fed chairman has emphasized the need to regulate stablecoins.
The digital currency makes this transition even more apparent. Interest rate setting and the total amount of the Federal Reserve’s balance sheet are only two areas where CBDCs and stablecoins can cause significant systemic disruption.&nbsp;
In their published study, the Federal Reserve examines these effects and notes that monetary policy adjustments may be required to forestall a decline in lending and preserve economic stability in the case of digital currency integration.
<h2 class="wp-block-heading" id="strong-cbdcs-with-higher-interest-rates-may-attract-more-investors-strong">CBDCs with Higher Interest Rates May Attract More Investors</h2>
Based on the similarities between <a href="https://www.thecoinrepublic.com/2024/02/14/pepe-crypto-price-turns-bullish-surges-almost-23-50-this-week/" target="_blank" rel="noopener noreferrer nofollow">stablecoins </a>and CBDCs, the study concludes that digital currencies with higher interest rates would attract more investors and deter depositors from going to conventional banks.&nbsp;
It might affect lending volumes. However, looking at present, crypto is not considered a risk-defensive investment. Overall, the equilibrium interest rate is expected to fall, and the central bank would have less room to maneuver in times of crisis if this scenario plays out.
Another nuance comes from “narrow banks,” which compete with traditional commercial banks for customers’ deposits but do not provide loans.&nbsp;
Commercial banks may see a decline in lending capacity and repercussions to the loan market as a whole if depositors flee to these institutions due to their lower interest rates and easier structure. However, there is nothing official yet, and based on the recent comments of Gary Gensler, SEC chair, there is still a long way to go.
<h2 class="wp-block-heading" id="strong-austerity-sucks-of-whalepool-io-blasts-the-stable-coins-strong">Austerity Sucks of Whalepool.io blasts the Stable Coins</h2>
Austerity doesn’t seem to be so much into Stablecoins; he wrote in one of these highly popular articles that they have been described as “PayPal on the Blockchain”. This is because they allow users to transfer USD without undergoing KYC screening.&nbsp;
These tokens have value because they can transfer USD without KYC screening, but they may not be so stable in the long run.&nbsp;
While stablecoin proprietors make some profit, stablecoins have limitations such as censorship of transactions and compliance requirements for USD custodians. In practice, these tokens can censor transactions after the fact by blocking money.&nbsp;
Tether has done this multiple times, and all the other Tether clones can similarly blacklist after the fact. Nonetheless, these tokens can be transferred to anyone on the blockchain without regulators or banks knowing the recipients.&nbsp;
As more people realize these tokens are pointless if they require KYC-whitelisted transfers only, they may turn to more efficient centralized systems. Creating a whole project to produce a coin that has a stable value is not a smart move. It may be better to collateralize the model instead of creating complex risk systems for stability in the form of crypto.&nbsp;
Financial engineers can quickly develop some ridiculous model that encourages people to invest in a system that merely tracks some measure for value stability. Whether it is Basis, Seigniorage, or some other project, constructing an asset that is simply stable in fiat terms is not a smart move.&nbsp;
<h3 class="wp-block-heading" id="strong-conclusion-strong">Conclusion</h3>
News from dailycoin.com and cryptopolitan.com reports a closed-door meeting with House Democrats where the Fed chairman emphasized the need for stablecoins. However, there are concerns that stablecoins can have limitations, such as censorship of transactions and compliance requirements for USD custodians, which can lead to significant systemic disruption.

Will the Federal Reserve Call for Stablecoin Regulation?

Table of Contents

Thecoinrepublic.com

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