Regulators Threaten Stablecoin Crackdown
The Big Picture
During a meeting with the Biden administration’s working group on financial markets on Monday, Treasure Secretary Janet Yellen has asked the regulators overseeing crypto assets to “act quickly to ensure there is an appropriate U.S. regulatory framework in place” for stablecoins in the crypto markets. The meeting was attended by Yellen, Fed Chairman Jerome Powell, SEC Chairman Gary Gensler, CFTC Acting Chairman Rostin Behnam, FDIC Chairman Jelena McWilliams, Acting Comptroller of the Currency Michael J. Hsu, Fed Vice Chair Randal Quarles, and Treasury’s Under Secretary for Domestic Finance J. Nellie Liang.
What Led to This
The stablecoin economy has topped $100 Billion in value and the demand for stablecoins has skyrocketed in 2021. Such rapid growth has raised concerns regarding market stability due to the general lack of trust in the entities issuing these cryptocurrencies. On top of that, the US is still pushing for a digital dollar and stablecoins like Tether could be seen as "competition".
Why This is Important
- According to the report from the meeting, regulators see stablecoins as both useful and very risky for the end-user.
- Bank of England stated that they expect stablecoin payments to be regulated in the same way as bank payments, if stablecoins see similar levels of adoption.
- In November 2020 ECB President Christine Lagarde expressed concerns regarding stablecoins such as the Facebook-backed crypto. According to her “they could threaten financial stability and monetary sovereignty”.
- Just last week, Fed Chairman Powell stated that stablecoins won't even need to exist if we had a digital U.S. currency.
One could speculate that U.S. regulators are starting to identify stablecoins as a threat to the digital dollar. On the other hand, putting a regulatory framework in place could protect investors from potential risks that are ever-present in the current stablecoin market.
It remains to be seen how U.S. regulators want to deal with stablecoins and according to the report, the PWG expects to issue recommendations in the coming months.