The Biden administration is looking into the possibility of regulating stablecoin issuers as if they were banks. The administration is also considering asking Congress to pass legislation to create a special-purpose charter tailored specifically to these companies.
All of the recommendations made by the Biden administration will be included in a Treasury-led paper due out in October.
Considering Issuers to be Banks
Apart from treating stablecoin issuers as banks, the administration will also encourage the companies to register as banks, with the ongoing and rapid evolution of the crypto space causing authorities significant concern.
Along with the regulatory strategy, the administration is considering going to Congress and asking it to propose legislation to create a special-purpose charter for these firms. If Congress passes the special-purpose charter, stablecoin issuers will be subject to federal oversight rather than state laws.
Still Under Construction
Although the recommendations and proposals are still in the works, they will be included in a Treasury-led paper due out in late October. Treasury Secretary Janet Yellen, Federal Reserve Chairman Jerome Powell, and Securities and Exchange Commission Chairman Gary Gensler are the authors of the paper. Stablecoins were recently compared to poker chips by Gensler.
One of the administration’s recommendations is for the Financial Stability Oversight Council to investigate the risks that stablecoins pose to the current financial system. The administration is leaning toward Congress to act because the Financial Stability Oversight Council can be difficult or unwieldy. The Federal Reserve will also issue its much-anticipated report on the potential digital dollar.
Attracting Regulators’ Attention
Stablecoins are digital tokens that are frequently linked to external assets or currencies, such as the US dollar. Stablecoins account for only a small portion of the $2 trillion in digital assets, but they have piqued the interest of regulators due to their astounding growth in a relatively short period of time.
Tether and Circle, two well-known stablecoins, have seen their valuations skyrocket to $110 billion from $11 billion. As a result, they’ve become a target for regulators, who’ve proposed a slew of strict cryptocurrency regulations. Chairman of the Securities and Exchange Commission Gary Gensler has already warned that cryptocurrency investors could be harmed if the crypto space does not receive the same protection against fraud and manipulation as the banking sector.
In contrast, Federal Reserve Chairman Jerome Powell told Congress that stablecoins, like money market funds, should be regulated.
“Stablecoins are similar to money market funds and bank deposits, but they are outside the regulatory perimeter to some extent, and it is appropriate that they be regulated. The same activity, the same regulations.”