Biden government considers stablecoin regulation outside banks
One government official has stated that the President’s Working Group (PWG) on Financial Markets is willing to consider alternative means of regulating stablecoin issuers than as banks.
The PWG convened Thursday morning behind closed doors, and its members included the leaders of the US Treasury, the Federal Reserve, the SEC, and other financial regulatory agencies.
After the run on TerraUSD in early May sent shockwaves through the cryptocurrency markets, the group addressed how to better monitor stablecoins moving forward.
Legislation to regulate stablecoins is now the subject of heated debate on Capitol Hill, which is why this conference is taking place. One administration official has stated that this year will see the passage of stablecoin legislation.
At first, the PWG suggested back in the autumn of 2017 that only banks, which are already subject to stricter scrutiny and regulation, should be permitted to create stablecoins.
Officials are now willing to consider alternatives to insured depository institutions, such as a distant subsidiary. As far as we can tell, this is the first time the government has recognised a model other than conventional banks that may be adequate. Stablecoins are digital currencies that are tied to a stable, or “base,” currency, such as the US dollar.
According to the administration source, the PWG believes any regulation must account for the current and potential uses of stablecoins, such as in the payment system.
Any new law would presumably have to do no less than protect the powers that regulators now have. The leaders of the financial regulatory agencies agree that the existing system is untenable, therefore they are collaborating to provide useful feedback to policymakers.
Meeting at a time when new legislation to regulate stablecoins is being introduced in the House Financial Services Committee led by Chairwoman Maxine Waters (D-CA) and Ranking Member Patrick McHenry (R-NC).
This comes after two measures were introduced in the Senate, one by Cynthia Lummis (R-WY) and one by Kirsten Gillibrand (D-NY), both of which would exclude stablecoin issuers from having to register as banks subject to banking rules. To ensure that stablecoin holders may always redeem their stablecoin for the equal dollar value, the bill would mandate that stablecoins be backed by reserve-like assets such as Treasuries or dollars and include thorough transparency requirements for all issuers.
Toomey’s (R-PA) alternative plan would establish a new federal licence for corporations issuing stablecoins, while preserving the ability of many existing stablecoin issuers to maintain their position as state-registered money transmitters or as insured depository institutions.
Stablecoins are still under under scrutiny by the Financial Stability Oversight Council, a committee created after the financial crisis by the chiefs of all financial regulatory agencies to monitor possible dangers to the financial system. Still believing that legislation is the most effective approach to regulate stablecoins, the organisation has not yet decided whether to take action or not.
The conference was called after a rush for stablecoin TerraUSD and its sister token Luna jolted the cryptocurrency markets in early May. Bitcoin (BTC-USD) and ethereum (ETH-USD) have been trading at their lowest levels since late 2020, indicating that the cryptocurrency markets have been under pressure during much of 2022.