The US government is banking on Congress to pass a bill imposing stricter regulations on stablecoins — a popular form of cryptocurrency that has taken over the industry.
The Treasury Department and other financial regulators — through a 22-page report — said the bill should compel issuers of stablecoins to become banks. Doing so will force stablecoins to comply with regulatory laws.
If stablecoin issuers become banks, regulatory laws will oblige stablecoins to hold ample cash reserves. On top of that, find effective ways to curb money laundering and illegal activities such as fraud and terrorism-funding.
Current oversight is disjointed and defective
Janet Yellen, the US Treasury Secretary, said a lack of stricter oversight rules of stablecoins pose huge risks to investors and the financial system.
Yellen disclosed that the current oversight is weak and unreliable, which is the main reason “some stablecoins [are] effectively falling outside the regulatory perimeter”.
The President’s Working Group on Financial Markets (or the interagency committee) and the Treasury, are behind the crafting of the much-awaited report issued on Monday.
Other agencies involved in the report’s preparation include Commodity Futures Trading Commission, Securities and Exchange Commission, and the Federal Reserve.
In the report, some of the (above-mentioned) agencies support the bill saying it’s an urgent need that will “comprehensively address the prudential risks posed by payment stablecoin arrangements”.
Interagency committee proposes a temporary watchdog
While we wait for Congress to act on the bill, the interagency committee proposes that the Financial Stability Oversight Council become a watchdog and oversee stablecoins issuers’ reserves — and come up with logical ways to protect investors as well.
Howell Johnson, Harvard Law School’s financial regulatory expert, supports the committee’s proposal saying it’ll force stablecoins to toe the regulatory line, “which is the thing that most people think is appropriate”.
The Financial Stability Oversight Council is a coming-together of financial regulators with the sole responsibility of detecting risks in the broader financial system.
Gary Gensler, SEC Chairman, is among the regulators who have already taken a tough stance on stablecoins saying they’re easy targets for tax avoidance, fraud, and money-laundering — never mind ideal for evading US financial sanctions as well.
Stablecoins are a form of digital currency that attaches their value to a single dollar. So, each stablecoin token is worth $1. By maintaining this value, stablecoins are better suited for commercial transactions, unlike Bitcoin’s value that wildly sways.
That explains why Bitcoin holders consider buying Bitcoin an investment. And they rarely spend on something that quickly appreciates in value, and for a good reason.
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