US Lawmakers Nearing Agreement on Stablecoin Regulation

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US Lawmakers Nearing Agreement on Stablecoin Regulation
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A bipartisan group of U.S. lawmakers is nearing an agreement on new legislation aimed at establishing a regulatory framework for stablecoins.

A potential deal to introduce the legislation ultimately hinges on a collaboration between the chair of the House Financial Services Committee, California Democrat Maxine Waters, and North Carolina Republican Supreme Committee member Patrick McHenry. While the deal has not been finalized and could still fall apart, McHenry said he was close to a deal as McWaters admitted they were “working on it”.

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Much of the debate over stablecoin regulation hinges on whether issuers are treated like banks or money market mutual funds. The bill proposed by Waters and McHenry leans more toward treating them like banks, subject to compliance not only with federal regulation but also with capital and liquidity rules.

Concerns surrounding stablecoins were combined with the collapse of the TerraUSD stablecoin earlier this year and the subsequent temporary decoupling of the Tether stablecoin. Authorities are concerned that doubts about its backing could lead to a run on the stablecoin, forcing issuers to liquidate their reserves, putting downward pressure on asset prices in other markets.

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As such, the bill will also authorize strict requirements for assets used to back stablecoins. That would purportedly reduce the risk of destabilizing a sell-off of these assets in a crisis. Other restrictions include prohibiting non-financial companies from issuing such products and imposing stricter distinctions between financial and tech companies.

Pay in stablecoins

Waters and McHenry’s bill is also expected to play an important role for the Fed. As the regulator of “payment stablecoin” issuers, it will have the power to enforce the requirements and restrictions established by the act.

Another provision of the bill would commission the Federal Reserve to study a central bank digital currency, also known as a digital dollar. For now, the Fed is still in the early stages of considering the idea. Still, amid a surge in privately-issued stablecoins, Federal Reserve Vice Chairman Lyle Brainard believes a regulated CBDC could one day offer consumers a degree of security.

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