Stablecoins are a compelling payment option, but they need to be regulated, Biden administration report says

“The use of stablecoins presents a number of public policy challenges with respect to protecting investors,” he said. “Further, stablecoins may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and other safeguards against illicit activity.”

The administration said it spoke with several key players in the crypto industry in drafting its analysis, including payments platforms Visa, Mastercard and Square, as well as exchanges Coinbase, Gemini and Kraken.

Of paramount concern to the working group was what they called “prudential” risk. Prudential risks include a run on stablecoins, issuers’ inability to honor redemption requests or market concentration.

The report’s authors recommended that “Congress act promptly to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal prudential framework on a consistent and comprehensive basis.”

To remedy those broad concerns, the report recommended lawmakers limit stablecoin issuance to insured banks.

Classifying stablecoin issuers as banks would give government agencies — including the Federal Deposit Insurance Corp. and the Federal Reserve — greater jurisdiction over their operations, risk management and a better sense of the industry’s overall health.

Regulators would be able to impose capital and liquidity standards designed to keep financial institutions safe and ensure issuers are able to honor coin redemptions.

That recommendation in particular drew pushback from some, including GOP Sen. Cynthia Lummis of Wyoming, who said the requirement goes too far and would disadvantage smaller start-up businesses.

“I agree with many of the recommendations, including the need for Congressional legislation and prudential risk management, proposing that only insured depository institutions may issue a stablecoin is misguided and wrong,” she said in prepared remarks. “We should all be able to agree that startups should have the same chance as Wall Street institutions. As the report clearly states, though, Congress will have the final say.”

Administration officials also noted that discussions with Capitol Hill are still in the early stages.

While lawmakers on both sides of the aisle are likely in favor of better regulation, it’s unclear whether congressional Democrats will have any time to spare as they work to pass both a $1 trillion bipartisan infrastructure bill and their roughly $1.75 trillion antipoverty and climate package before year’s end.

Article source: https://www.cnbc.com/2021/11/01/congress-should-regulate-stablecoins-biden-administration-report-says.html