Congress may rebuff U.S. regulators who wanted stablecoins to be the exclusive territory of banks, according to a lawmaker familiar with a legislative effort now in motion.
Democrats on the House Financial Services Committee have been working on requirements that may not be as restrictive as the Treasury Department and financial regulators had requested. The bill is expected to allow a path for nonbank firms to become government-approved stablecoin issuers, said Rep. Jim Himes, (D-Conn.), who is a senior member of the committee and one of its subcommittee chairmen but isn’t working directly on the legislation.
Some lawmakers have already openly predicted that it’s possible to get a bill out soon that sets rules of the road for stablecoins – a vital component of today’s cryptocurrency markets. But such a bill requires action from House Democrats.
“Apparently, we'll have options for both banks and non banks,” Himes told CoinDesk in an interview. He said Chairwoman Maxine Waters (D-Calif.) and the ranking Republican on the committee, Rep. Patrick McHenry (R-N.C.), have been working together on a narrow, stablecoins-only bill, and it’s expected to establish “standards for reserves” for more than one kind of issuer.
That concession could run counter to last year’s report from the President’s Working Group on Financial Markets that recommended the tokens only be offered by “insured depository institutions, which are subject to appropriate supervision and regulation.”
Stablecoins, including dollar-tied tokens such as Tether’s USDT and Circle Internet Financial’s USD coin (USDC), are meant to offer a stable means of moving in and out of more volatile cryptocurrencies, but for financial watchdogs fearful of runs, they also represent crypto’s most alarming sector.
While the details of the legislation may not match one of the central requests from regulators, the working group also asked that “Congress act promptly to enact legislation” – an apparent aim of the committee leaders.
“There is broad agreement that legislation is necessary,” McHenry said in an emailed statement, adding that the “best way to get this done” is in a bipartisan approach similar to the crypto bill he introduced late last year.
In recent months, Republican lawmakers have argued against keeping stablecoins entirely boxed into banking. A proposal from Sen. Patrick Toomey (R-Pa.) suggested a new federal license just for stablecoin issuers who could do that business alongside traditional depository institutions, and McHenry contended earlier this year that “requiring stablecoins to only be issued by banks would be a major obstacle for us continuing to foster innovation.”
It’s unclear exactly how the current House bill would allow for nonbank stablecoin issuers, and people familiar with the effort say negotiations remain underway among lawmakers, so the details are still being worked out. Meanwhile, the Biden administration is trying to encourage speed.
Treasury officials have been working with Congress, but a department spokesman said he couldn’t comment on the discussions.
Last month, both Toomey and McHenry suggested a stablecoin bill could be completed this year – an against-the-odds assertion that suggests some Republicans are willing to make deals to let a bipartisan bill through the evenly split Senate. A Biden administration official also told CoinDesk last month that legislation could be passed by the end of the year.
“The big question – always – is can you get 60 votes in the Senate?” Himes said, suggesting that Toomey’s support could help. Still, Himes said he’s been telling people that “there’s nothing legislatively coming out of this Congress.”
That would mean a stablecoin bill would have to wait for the next session, and an influx of new members that may shift the majority to the Republicans next year.
The historic trend for major financial legislation is that it’s often driven by a crisis. So far, U.S. regulators continue to argue that the damage being wrought in today’s crypto sector isn’t significant enough to threaten the rest of the financial system. Still, the terraUSD fiasco illustrated the costly vulnerabilities of certain stablecoins and lent energy to lawmakers, who are focusing more attention on the industry.
“It's actually been great to watch my colleagues on both sides of the aisle really kind of educate themselves on these issues,” said Himes, who has a background in finance as a former banker at Goldman Sachs Group, Inc. “Five years ago, if you'd said cryptocurrency, there'd be two people in this building who would know what the hell you're talking about.”
Dante Disparte, Circle’s chief strategy officer, released policy principles for stablecoins on Monday, insisting that it’s time for Washington to act.
“The preservation of bank and non-bank dollar digital currency issuance promotes competition, a level playing field, and rules-based upgrades in the financial system,” according to one of the company’s policy assertions.
“We have been engaged with Congress quite a bit,” Nellie Liang, Treasury’s undersecretary for domestic finance, said Monday about the discussions over stablecoin legislation. At a Financial Service Forum event in Washington, Liang — who said digital assets have a “potential to really fundamentally reform payments” — continued to argue that U.S. regulators can't properly oversee this sector without action from lawmakers.
UPDATE (July 18, 2022, 14:45 UTC): Adds additional information.
UPDATE (July 18, 2022, 15:35 UTC): Adds a quote from Treasury Undersecretary Nellie Liang.
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