A bipartisan group of U.S. lawmakers are close to concluding an agreement on new legislation that seeks to establish a regulatory framework for stablecoins.
The potential deal that would introduce the legislation ultimately depends on cooperation between House Financial Services Committee Chairwoman Democrat Maxine Waters of California and the top Republican on the panel Patrick McHenry of North Carolina. While the agreement is not yet final, and could still fall apart, McHenry said that he was close to a deal, as McWaters acknowledged they were “working on it.”
The debate over stablecoin regulation largely hinges on whether to treat issuers like banks or money-market mutual funds. The bill being proffered by Waters and McHenry falls more on the side of treating them like banks, not only requiring compliance with federal supervision but also adherence to capital and liquidity rules.
Fears surrounding stablecoins have coalesced with the collapse of the TerraUSD stablecoin earlier this year, and the temporary de-pegging of the Tether stablecoin that followed. Authorities fear that doubts about their backing could cause a run on stablecoins, forcing issuers to liquidate their reserves, putting downward pressure on asset prices across other markets.
Consequently, the bill would also authorize stringent requirements for the assets used to back a stablecoin. Supposedly, this will reduce the risks of destabilizing fire sales of those assets in a crisis. Other restrictions would include prohibiting non-financial companies from issuing such products and imposing a stricter separation between financial firms and tech companies.
Waters and McHenry’s bill is also expected to envision a prominent role for the Federal Reserve. As the regulator of the issuers of “payment stablecoins,” it would be empowered to enforce the requirements and restrictions enacted by the bill.
Another provision of the bill would commission the Fed to research a central bank digital currency, also referred to as a digital dollar. At this point, the Fed remains in the early stages of considering the idea. Still, amidst the proliferation of privately-issued stablecoins, Fed Vice Chairwoman Lael Brainard believes that a regulated CBDC could one day provide consumers with a level of security.