Partisan Split Over Stablecoins Highlighted at Banking Hearing
Stablecoin Issuers Should Choose Rule Model, Key Lawmaker Says
(Bloomberg) -- Partisan divisions over stablecoins became more apparent during a Senate Banking Committee hearing Tuesday -- with a key Republican touting the possible benefits, while Democrats argued the tokens pose risks to consumers and the economy.
Massachusetts Democrat Elizabeth Warren Elizabeth Warren expressed concern that the “talk” around stablecoins doesn’t match up to reality, noting that the value of cryptocurrencies like Tether can fluctuate even if they’re supposed to be pegged one-to-one to the dollar. By Tether’s own report only about 10% of the assets backing its stablecoin are real dollars--but Warren warned that even that number isn’t verified by an audited financial statement or a government regulator.
Congress and federal agencies have been grappling with how best to regulate the crypto industry, including stablecoins, which are backed by another asset, such as the dollar, in an effort to reduce volatility.
“Let’s be clear about one thing: if you put your money in stablecoins, there’s no guarantee you’re going to get it back,” Senate Banking Committee Chairman Sherrod Brown said in his opening remarks.
“And if there’s no guarantee you’ll get your money back, that’s not a currency with a fixed value--it’s gambling,” he said, adding that he’s worried about a potential asset bubble.
Others like Senator Pat Toomey, the top Republican on the Banking Committee, remarked on the potential for stablecoins to increase the speed of payments and lower costs. He said lawmakers should be careful not to stymie innovation with future legislation, advocating for stablecoin issuers to have the ability to choose from three different regulatory models, including operating under a bank charter.
The Pennsylvania Republican outlined a blueprint for future legislation in remarks at the Tuesday hearing, where he also said stablecoin issuers may be able to register as a money transmitter, which would subject them to state rules.
It’s unlikely any legislation proposed by Republicans will gain much traction anytime soon with the Senate evenly divided and most Democrats having a far less favorable view of stablecoins.
In his “guiding principles,” Toomey said stablecoin issuers would choose to either operate under a conventional bank charter, acquire a special-purpose banking charter designed in the future stablecoin legislation, or register as a money transmitter at the state level and a money services business at the federal level. He also said non-interest bearing stablecoins shouldn’t necessarily be regulated like securities.
“The legislation should address consumer protection and financial system risks, but it should also be designed to promote innovation in the rapidly evolving global digital economy,” Toomey said in a statement.
Last month, the President’s Working Group on Financial Markets published a report raising concern about risks tokens pose to the U.S. economy. The report urges Congress to pass legislation that requires stablecoin issuers to become banks with insured deposits, capital and liquidity requirements and Federal Reserve supervision. In fact, companies should be prohibited from offering payment stablecoins unless they are insured depository institutions, the report recommended.
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