As the U.S. House of Representatives Committee on Financial Services prepares for a hearing to discuss the regulation of stablecoins, industry insiders have given advance testimony about the potential benefits of these digital payment instruments. Supporters of these coins suggest that they provide the opportunity for increased financial inclusion and the preservation of the U.S. dollar’s influence on the global economy. Despite this, the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) lack the authority to regulate the activity of new stablecoin offerings.
Introduction of Landmark Stablecoin Bill
In a hearing to be held on April 19th, Congressman Pat Toomey (R-PA) introduced a landmark stablecoin bill intended to foster innovation while ensuring the safety and soundness of digital assets. This bill seeks to define the terms under which a stablecoin issuer may operate and is designed to create a fairer regulatory framework while fostering competition between governing agencies. The bill also encourages the Federal Reserve to study the impact of issuing a digital currency, whilst granting a moratorium on new stablecoin offerings backed by other types of tokens.
Improving Financial Inclusion in the US
In a stunning move, the Consumer Reports director of financial fairness Delicia Reynolds Hand, Jake Chervinsky, chief policy officer at the Blockchain Association, and Austin Campbell, managing partner at Zero-Knowledge Consulting and adjunct professor at Columbia Business School, are all set to give testimony to the hearing. These invited speakers are adamant that stablecoin offerings can expand the reach of the U.S. dollar and improve financial inclusion across the United States. Moreover, it is believed that without the correct legislation, stablecoins may miss out on an opportunity to supersede traditional payment systems, as Dante Disparte, chief strategy officer and global policy head at Circle, suggested.
Draft Stablecoin Bill Addresses Interoperability and Consumer Protection, Amidst Criticism of Illicit Activity and Lack of Regulation
The draft bill also covers other key elements including the establishment of standards for interoperability between stablecoins and providing protection for consumers. Critics are quick to condemn the role of stablecoins for facilitating illegal activity and potentially misappropriating funds, however, much of this criticism is more applicable to unregulated cryptocurrency transactions such as Bitcoin and Ethereum.
Unfortunately, it is the unregulated nature that makes stablecoins more attractive for illicit activities, as was evidenced on the 11th of March when hackers gained access to Disparte’s Twitter account and falsely advertised loyalty rewards. This potentially could have created a source of liabilities for holders of the compromised coins, had the system been supportable by some form of insurance.
Circle’s CEO and Other Proponents Welcome Stablecoin Bill Progress
On a more positive note, Circle’s CEO Jeremy Allaire welcomed the progress of the bill, noting the need for laws that ensure digital assets are securely operated. Of course, this is an assessment echoed by other proponents of the bill, including committee member and Democrat Maxine Waters. The stability of these currencies is vital if they are to become a globally accepted and trusted form of money.
The Future of Stablecoins
In summary, a combination of technology and proper regulation will open the door to increased financial inclusion and create the potential of new markets and opportunities that were previously unavailable. With the hearing just days away and a groundbreaking industry-specific bill now in the House, the revolution of stablecoins is already underway. How the U.S. regulatory framework handles the situation going forward will determine whether it is an opportunity for financial inclusion or a game changer with a much more negative outcome. Only time will tell.
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