A new U.S. Congressional bill would require stablecoin issuers to ensure compliance with banking rules and regulatory approval before circulating any stablecoins.
The new bill
US representatives Rashida Tlaib, Jesús “Chuy” García and Stephen Lynch presented the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act last week, explaining that it will focus on regulating stablecoins.
The text also mentions the stablecoin of the Libra project (now renamed Diem) led by Facebook (Nasdaq shares: FB) as an example. "Digital currencies, whose value is permanently pegged or stabilized against a conventional currency such as the dollar, pose new regulatory challenges while also representing a growing source of market, liquidity and credit risk," the statement read.
Specifically, the 18-page bill requires stablecoin issuers to meet a banking regulation; seek approval from the Federal Reserve, Federal Deposit Insurance Corporation, and the specific regulator of the issuer's state or federal bank; require the institutions themselves to conduct a continuous analysis of any systemic risk; and require issuers to have FDIC insurance or hold reserves for easy conversion into US dollars. This would apply to stablecoins pegged to other national or state currencies, the bill says.
Main criticisms
The bill is designed to protect people, Tlaib said in the press release. Numerous stablecoin issuers currently operate in the United States out of banking regulations, including the CENTER consortium (comprising Circle and Coinbase), Gemini and Paxos.
Algorithmic stablecoins like basis.cash or collateral crypto tokens like DAI would also appear to fall under this bill. Circle CEO Jeremy Allaire said the bill “would represent a huge step backwards” by limiting innovation in the industry.
“A huge amount of innovation brought to small businesses has been driven by non-bank fintech companies, and forcing cryptocurrency, fintech and blockchain companies to bear the huge regulatory burden of Federal Reserve and FDIC regulation and oversight is inconsistent with the objectives of supporting the innovation of stablecoins in making payments fair and inclusive, ”said Allaire.
In a statement, Executive Director of the Blockchain Association Kristin Smith opposed the bill, saying, “While we have had sustained and constructive discussions with the office of Representative Tlaib on this issue, we disagree with the perspective of this legislation and we oppose this bill.
It would strengthen the position of the most powerful financial institutions, ignoring two fundamental promises of decentralized networks: the ability to put more power in the hands of individual consumers and to catalyze innovation through payments and other financial services ”.
Smith said the OCC's guidance on stablecoins is a "progressive example" of how these tokens could be regulated in the United States. The current session of Congress will end in a few weeks, but Murphy said the bill will be tabled again next year.
