U.S. House Financial Services Committee to conduct hearing on draft legislation for stablecoin regulation
The U.S. House Financial Services Committee plans to hold a hearing on April 19 to examine a draft legislation introduced over the weekend aimed at regulating stablecoins, which are a type of digital currency designed to provide price stability by pegging their value to another asset.
The draft bill intends to establish stricter oversight of stablecoins and promote research into the potential development of a digital dollar. It mandates that stablecoin issuers hold reserves that back their stablecoins on at least a one-to-one basis, which may consist of U.S. dollars, insured demand deposits, Treasury bills, repurchase agreements, and reserves held at the central bank.
Additionally, the draft would assign the Federal Reserve Board the responsibility for overseeing non-bank issuers, while insured depository institutions and insured credit unions wishing to issue stablecoins would be subject to regulation by the appropriate federal banking agencies or the National Credit Union Administration. Those who issue stablecoins without the necessary regulatory approval could face penalties including up to five years in prison and fines of up to $1 million.
Moreover, the proposed legislation aims to implement a two-year freeze on what it defines as “endogenously collateralized stablecoins” that did not exist at the time the bill is enacted. An endogenously collateralized stablecoin is characterized as any digital asset that “depends solely on the value of another digital asset produced or maintained by the same originator to sustain its fixed price.”
The draft would further instruct the Federal Reserve Board to examine the implications of a U.S. central bank digital currency, or digital dollar, particularly regarding its effects on the Fed’s monetary policy tools, the country’s financial architecture, and international payment systems.
“This is an unprecedented moment for the future of the dollar globally and the future of currency online,” tweeted Jeremy Allaire, CEO of Circle, which issues the second-largest stablecoin, USDC, on Saturday. “There’s evidently a pressing need for strong bipartisan support for regulations that ensure digital dollars on the internet are issued, backed, and operated securely.”
The introduction of this draft bill follows significant events in the crypto sector over the past year, marked by instances of stablecoin “depegging,” where certain tokens lost their value relative to the assets they were backed by, including the collapse of Terra-Luna. Recently, USDC temporarily lost its peg to the U.S. dollar when regulators took control of the failed Silicon Valley Bank and guaranteed deposits, including those from Circle, to avert a wider panic in the banking sector.
This proposed legislation showcases increasing anxiety among regulators and lawmakers regarding the potential risks associated with stablecoins, which have surged in popularity in recent times as a means for swift and efficient cross-border value transfers. The bill aims to safeguard consumers and enhance the stability of the financial system while promoting innovation in the digital currency arena. The forthcoming hearing will serve as a platform for lawmakers to discuss the advantages of the draft bill and evaluate possible amendments ahead of its introduction for a vote.
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