Fifteen years ago Lehman Brothers collapsed, destroying the retirement savings of millions of Americans. Congress and the White House responded to the ensuing financial crisis by passing the Dodd-Frank Act, which was meant to strengthen the financial system and protect consumers.
Heath Tarbert, former Chairman of the Commodity Futures Trading Commission, is Chief Legal Officer at Circle. This op-ed is part of CoinDesk's State of Crypto Week sponsored by Chainalysis.
Today, digital currencies are poised to upgrade America’s decades-old financial plumbing, bolster the U.S. dollar, and make it easier, faster, and cheaper for families and businesses to send, spend, lend, and exchange their money. But this can happen only if Washington unites behind payment stablecoin legislation that puts financial stability and consumer safety first.
Payment stablecoins are neither niche nor novel – they form an important new base layer for today’s payments and commerce, remittances and humanitarian aid. Their rapid growth reflects their everyday, real-world utility as digital dollars move globally at the speed and scale of the internet.
The positive impact of digital dollars can have an outsized impact in communities across the U.S. Working American families disproportionately bear the burden of the high-fees related to sending and spending their hard-earned money. Contrast wiring funds with sending a text message across the country. Have you ever paid $6 and waited three days to text a loved one?
The frictionless nature of stablecoins is helping to expand financial security and inclusion to vulnerable populations here and abroad who can’t easily access brick and mortar banking. The United Nations, for example, has begun sending humanitarian assistance in the form of stablecoins to Ukrainian refugees.
Congress is beginning to grasp the stakes. This summer, several committees advanced bills to better regulate the digital asset economy, including the Clarity for Payment Stablecoins Act, which the House Financial Services Committee approved on a bipartisan basis. The stablecoin measure serves as a vital foundation for the other bills.
Congress should pass that bill or another bipartisan measure that provides for the following:
- Strong supervision and risk management of stablecoin issuers
- Strict requirements on the assets that can be held to back digital dollars
- Redemption and custody requirements that protect consumers
- Robust transparency, audit, and reporting requirements
- A level playing field between banks and non-banks
- Appropriate roles for both federal and state regulators in chartering and supervising issuers
- A ban on “counterfeit” digital dollars issued by those operating beyond America’s laws
Republicans and Democrats alike want the United States to make the rules – not follow the lead of other countries. That’s why the Senate and White House must join the House in advancing this legislation on a broad, bipartisan basis.
Our aging financial system is rife with friction and inefficiency. Whether it’s 3% credit card fees borne by small businesses, overdraft charges, two-day delays for clearance of checks, or waiting for paychecks, many of these costs will be eliminated by a well regulated system where payments are settled digitally and instantaneously.
Good versus bad stablecoins
Prioritizing stablecoin legislation this year will establish stringent standards and transparency measures that differentiate between trustworthy, fully-backed U.S.-based stablecoins and those issued offshore with questionable practices and no safeguards to mitigate risks. Prohibiting what are in effect “unstable” stablecoins, or arguably even counterfeit dollars, would protect consumers both here in America and abroad.
The collapse of a global stablecoin without adequate backing could have severe implications for financial markets and the broader American economy. Treasury Secretary Janet Yellen has warned about this risk, and it's why the President’s Working Group on Capital Markets urged Congress to swiftly enact stablecoin legislation nearly two years ago.
China and Russia are working feverishly to develop digital assets in their own currencies. Stablecoin legislation will protect the dollar's primacy as the global reserve currency. The dollar’s privileged status keeps borrowing costs low, deploys our democratic values overseas, and provides a buffer during periods of economic stress.
By prioritizing stablecoin legislation, Congress can establish clear, coherent standards to protect consumers, improve financial stability, and advance the dollar as the internet’s preeminent currency. This critical piece of financial plumbing is needed first to ensure that America’s digital asset markets become the envy of the world.