Federal Reserve Governor Christopher Waller said on Wednesday that he disagreed with the Biden administration’s recommendations that only banks should be allowed to issue stablecoins.

In a virtual speech Wednesday afternoon at the Financial Stability Conference at the Cleveland Federal Reserve, Waller said he is not opposed to stablecoins being regulated as banks, but that banks shouldn’t be the only entities allowed to issue those digital currencies, which are linked to fiat or shorter-term paper.

“I understand the attraction of forcing a new product into an old, familiar structure,” he said.

“But that approach and mindset would eliminate a key benefit of a stablecoin arrangement—that it serves as a viable competitor to banking organizations in their role as payment providers,” the Fed policymaker added.

Waller’s comments come after the President’s Working Group on financial markets recommended earlier this month that Congress come up with a new set of rules to regulate stablecoins, specifically noting that only banks should be able to issue stablecoins.

However, some of the industry's biggest players are embracing those proposals — or at least the broader debate about cryptocurrency regulation.

Circle CEO Jeremy Allaire told Yahoo Finance last week that the administration's proposal "represents significant progress in the growth of this industry. There's a real recognition that as these payment stablecoins grow, they could grow at internet scale relatively quickly.”

According to the central banker, stablecoins lack of oversight does create risks, but he suggested regulators should give innovation the chance to compete with other payment systems, and create rules more tailored to the actual risks of the asset class, rather than fitting them into established banking regulations.

Waller’s remarks suggested he wasn’t concerned about stablecoins reaching scale rapidly, as long as there is sufficient competition within the stablecoin industry and from the existing banking system. But he added that rules were needed to ensure those reserves are what issuers say they are, and that rules were needed to oversee digital wallets.

If the issuer is backed by safe assets, and wasn’t participating in lending and was subject to ongoing oversight, that might be enough of a framework, Waller said.

He downplayed the Biden administration’s concerns of separating banking and commerce to guard against banks that might lend to certain customers on too favorable terms. Waller stated those rules should not apply to digital wallets and issuers that aren’t involved with lending.

“It does not necessarily mean imposing the full banking rulebook, which is geared in part toward lending activities, not payments,” he said.

“With the right network design, stablecoins might help deliver faster, more efficient retail payments as well, especially in the cross-border context, where transparency can still be low and costs can still be high,” he added.

Waller also reiterated his skepticism about the need for a central bank digital currency, noting that competition and innovation in payment systems is good for consumers.

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