Biden administration report: Congress needs to pass stablecoin legislation as soon as possible and limit issuers to insured banks

This article is from CNBC, the original author is: Thomas Franck

Odaily Planet Daily Translator | Nian Yin Si Tang

- The Biden administration says stablecoins, digital assets pegged to traditional currencies, could change the way Americans pay for everything from cell phones to haircuts.

- The Presidential Working Group on Financial Markets found that if regulated, stablecoins could “support faster, more efficient, and more inclusive payment options.”

- However, US President Biden's economic adviser said Congress should pass legislation to limit the issuance of stablecoins to insured banks.

Stablecoins pegged to traditional currencies are a popular type of digital asset that could change the way Americans pay for everyday things — everything from cell phones and gasoline to haircuts and coffee, according to a long-awaited report from the Biden administration.

The President’s Working Group on Financial Markets (PWG), which includes several of President Biden’s top economic advisers, said that when regulated, stablecoins can “support faster, more efficient, and more inclusive payment options.”

“In addition,” the report reads, “a shift toward widespread use of stablecoins as a means of payment could occur rapidly due to network effects or the relationship between a stablecoin and an existing user base or platform.”

However, Biden's economic advisers said Congress must quickly introduce regulation and a formal market structure to protect investors, issuers and exchanges and provide them with relevant information.

Specifically, the Biden team recommended that Congress pass legislation to limit the issuance of stablecoins to insured banks, a move that would give regulators greater jurisdiction over the industry.

Senior administration officials told CNBC that their report focuses on risks, but the top U.S. regulator believes stablecoins offer a compelling digital payments option but require more oversight from lawmakers.

Unlike more volatile cryptocurrencies, the $130 billion stablecoin market has gained prominence thanks in large part to stablecoins’ stable valuations and links to national currencies. This stability makes them a growing source of liquidity in the global cryptocurrency market. They are used by traders and investors to buy and sell other assets, or as a safe place to store wealth.

In this sense, stablecoins are more like a medium of exchange and store of value than traditional fiat currencies. This also distinguishes them from crypto assets such as Bitcoin, which investors generally view as a source of capital appreciation and potential market returns.

Gary Gensler, chairman of the U.S. Securities and Exchange Commission (SEC) and a member of the President’s Working Group on Financial Markets, said in a press release on Monday that stablecoins, like other digital assets, need to be monitored to ensure they are not funding criminal activity.

“The use of stablecoins raises a range of public policy challenges with respect to investor protection,” Gensler said. “In addition, stablecoins may facilitate those who seek to circumvent a range of public policy objectives associated with our traditional banking and financial system, including anti-money laundering, tax compliance, sanctions, and other safeguards against illicit activity.”

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

The working group is most concerned about what they call “prudential” risks. These risks include a run on the stablecoin, an issuer’s inability to honor redemption requests, or market concentration.

The report’s authors recommend that “Congress move expeditiously 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 allay these widespread concerns, the report recommends that lawmakers limit the issuance of stablecoins to insured banks.

Classifying stablecoin issuers as banks would give government agencies — including the FDIC and the Federal Reserve — greater jurisdiction over their operations, risk management, and better insight into the overall health of the industry.

Regulators will be able to impose capital and liquidity standards designed to ensure that financial institutions are safe and that issuers can honor their promises to redeem assets.

The proposal has been met with opposition from some in particular, including Republican Senator Cynthia Lummis of Wyoming, who said the requirement goes too far and would disadvantage smaller startups.

“I agree with many of the recommendations, including the need for congressional legislation and prudent risk management, but not the suggestion that only insured depository institutions should be able to issue stablecoins,” she said in prepared remarks. “We should all agree that startups should have the same opportunities as Wall Street institutions. However, as the report makes clear, Congress will have the final say.”

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

While lawmakers from both parties may favor better regulation, it’s unclear whether congressional Democrats will be able to find the time to do it — they also need to pass a $1 trillion bipartisan infrastructure bill and a roughly $1.75 trillion poverty alleviation and climate plan by the end of the year.