Three U.S. lawmakers have introduced a bill that will force private stablecoin issuers to obtain a banking charter (or license) and approval from the Federal Reserve before they can issue a stablecoin.
Instigated by Rep. Rashida Tlaib, with support from Reps. Jesús García and Stephen Lynch – all of them Democrats – the proposed law will also require issuers to get prior approval from the Federal Deposit Insurance Corporation (FDIC) and other bank regulators.
It will demand that any stablecoin issuers obtain FDIC insurance or “otherwise maintain reserves at the Federal Reserve to ensure that all stablecoins can be readily converted into United States dollars, on demand.”
Titled ‘Stablecoin Tethering and Bank Licensing Enforcement (Stable) Act,’ the draft law has drawn widespread criticism from cryptocurrency proponents, with many looking at it as a brazen attempt to stifle technological development.
But sponsors of the bill have a different conviction. Tlaib argues that the planned law “would protect consumers from the risks posed by emerging digital payment instruments, such as Facebook’s Libra and other stablecoins currently offered in the market, by regulating their issuance and related commercial activities.”
Stablecoins are virtual currencies that are backed by another asset or a basket of assets. They can be backed individually by the likes of the U.S. dollar, euro or British pound or even bonds. Stablecoins are primarily designed to limit the effect of price volatility on the coin itself, relative to a ‘stable’ asset, against which it is pegged. The most popular stablecoins include tether (USDT), USDC, and gemini dollar (GUSD).
“We cannot outsource the issuance of American currency to private entities and the Stable Act guarantees that our regulators will be able to effectively oversee the application of this new technology,” Lynch said in a press statement.
Widespread Criticism
The bill effectively puts private stablecoin issuers under the direct supervision of the Federal Reserve. That’s in part because it “unequivocally defines stablecoins as deposits under federal law,” according to Rohan Grey, the Willamette Law assistant professor, who is also pushing for the banning of nodes. Grey ran a series of propaganda tweets on Dec. 3 trying to sanitize the Stable Act.
Many in the crypto industry were at hand to challenge not only Grey’s assertions, but also to question in a critical way the logic, or lack thereof, of Rep. Tlaib’s attempt at regulating digital assets. Jeremy Allaire, the co-founder and chief executive of Circle, issuers of the USDC stablecoin, denounced the planned legislation in an eight-post thread on Twitter. He said:
The Stable Act would represent a huge step backwards for digital currency innovation in the United States, limiting the accelerating progress of both the blockchain and fintech industry.
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Allaire added that “any act of Congress in this sphere should be focused on embracing, investing in and supporting the incredible pace of open innovation that is happening with stablecoins and blockchain infrastructure.”
Erik Voorhees, CEO of Shapeshift, opined: “Tlaib – crypto is the antithesis of all the banking problems you rightly highlight. Let’s not force crypto to act like the banks maybe? (and indeed, it can’t, and won’t).”
Former Coinbase lawyer Reuben Bramanathan stated: “The #STABLEAct is a confused attempt at regulating perceived harms that are not actually caused by the technology, but are, ironically, inherent in the existing financial system that cryptocurrencies are designed to replace.”
What do you think and Rashida Tlaib’s planned law on stablecoins? Share your thoughts in the comments section below.
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