In a statement issued alongside proposed rules, Fed Gov. Michael Barr said stablecoins “will only be stable if they can be reliably and promptly redeemed at par in a range of conditions.”

The Federal Reserve proposed rules for stablecoin issuers Thursday, which would require issuers to back stablecoins with certain “high-quality, liquid assets” such as Treasury bills and would create an application process for banks wanting to issue stablecoins.

The central bank and other federal financial regulators are required by the Genius Act to establish a comprehensive federal regulatory framework for stablecoins.

The proposed rules would impose capital requirements on issuers to address credit and operational risks, as well as risk management standards. It would also create rules for Federal Reserve-supervised firms that safekeep the assets that back stablecoins; and would create a process governing appeals, hearings, and final determinations for banks applying to issue stablecoins.

“[T]he regulatory framework for stablecoins needs to provide strong guardrails and consumer protections so that new instruments can foster payments improvements that benefit households and businesses,” Fed Gov. Michael Barr said in a statement Thursday.

“Stablecoins will only be stable if they can be reliably and promptly redeemed at par in a range of conditions,” he said. “This includes during market stress, when pressure can be put on the value of even otherwise liquid government debt, and during episodes of strain on the individual issuer or its related entities.”

The Genius Act required federal regulators and the Treasury Department to establish regulations by July, meaning the Federal Reserve is behind in doing so.

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