Stablecoins Support “Faster and More Inclusive” Payments Options, says the Biden Administration’s Report
PWG also called for “urgent” Congressional action to regulate stablecoins to address the prudential risks posed by stablecoins. But nothing big is happening “any time soon.”
The President’s Working Group on Financial Markets (PWG), along with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC), has published its report on stablecoins.
According to this report from the Biden administration, stablecoins can transform the way payments are done.
When regulated, stablecoins could “support faster, more efficient, and more inclusive payments options,” said the report. “Moreover, the transition to broader use of stablecoins as a means of payment could occur rapidly due to network effects or relationships between stablecoins and existing user bases or platforms.”
According to Jake Chervinsky, Strategic Advisor to crypto fund Variant and previously a general counsel at Compound Finance, “prompt action from this Congress on *anything* is unlikely, let alone on something like stablecoins.”
The report acknowledges that federal agencies lack the authority necessary to implement its recommendations as it tells FSOC to “consider steps available to it” in the absence of Congressional action, he noted.
“It sounds like nothing big will (or can) happen any time soon,” concluded Chervinsky, saying the authorities first need to take time to sort through what makes sense and what doesn't.
To crypto trader and economist Alex Kruger, this report on stablecoins is “a short-term hurdle out of the way.”
Stablecoin paper is quick read seems consistent with what we are hearing from regulators so far also congress not super top of mind to do anything right now
— CMS Tax Partners LLC (@cmsholdings) November 1, 2021
Due to the “rapid growth of stablecoins,” the report has said it “increases the urgency” to regulate them.
In a statement, SEC Chairman Gary Gensler noted that the $130 billion stablecoin industry has grown 20-fold in the last 20 months. Despite representing about 5% of all crypto assets, they account for more than 75% of all crypto trading.
The working group also talks of “prudential” risks of stablecoins, including market concentration, a run on stablecoins, or issuers’ inability to honor redemption requests.
PWG and Biden’s economic advisors called for regulatory oversight and a formal market structure for stablecoins as soon as possible to protect issuers, investors, and exchanges. They specifically recommended Congress pass legislation that limits stablecoin issuance to insured banks.
By classifying stablecoin issuers as banks would give government agencies greater jurisdiction over their operations and allow regulators to impose capital and liquidity standards the same as financial institutions and banks.
The report acknowledged that some stablecoin issuers may also seek for these stablecoins to be used for payments in the future which, combined with the usage of these fiat-pegged coins with crypto trading and lending platforms, “raises emerging financial stability concerns,” said Gensler.
The SEC boss noted the agency, along with the CFTC, will deploy the full protections of the federal securities laws where applicable.