U.S. Federal Reserve announces procedures for banks trading stablecoins

In addition to requirements for trading stablecoins, the Fed announced a new surveillance program to more closely monitor banks' crypto activities.

The Federal Reserve (Fed) announces new information about its supervisory program for banks with crypto activities. This is contained in a official letter from the Fed on Aug. 8.

According to the letter, state banks "must have received notice from the Federal Reserve" before they begin "issuing, holding or processing payments in dollar tokens."

They must also demonstrate "that the bank has controls in place to ensure that operations are conducted in a safe and sound manner."

At the same time, the Federal Reserve announced a new supervisory program. This is designed to strengthen supervision of banking institutions with crypto activities supervised by the Fed.

The program should focus on so-called "new activities" in the banking sector. These include "activities related to crypto-assets" and distributed ledger technology (DLT). "Complex technology-based partnerships with non-banks to provide financial services to customers" are also under scrutiny.

The goal is to "promote the benefits of financial innovation while identifying and adequately addressing risks." This is to "ensure the safety and soundness of the banking system," the Fed explains.

The Fed's announcement follows the announcement of PayPal to launch its own stablecoin (PYUSD). The payments giant will gradually launch the cryptocurrency for users in the US.