The US Treasury has recommended Congress pass legislation that would see stablecoins subject to federal oversight, as a way to address concerns the institution has with the cryptocurrency.
The Treasury is asking for an appropriate federal prudential framework to be established for payment stablecoin arrangements, it said in a new report. It recommends requiring stablecoin issuers to be insured depository institutions, require custodial wallet providers to be subject to federal oversight, and require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities. These recommendations address three areas: user protection and run risk, payment system risk, and systemic risk and concentration of economic power.
Stablecoins are a type of cryptocurrency that attempt to offer price stability and are backed by a reserve asset. They peg their market value to an external reference, like the US dollar or a commodity’s price like gold, and have gained popularity as they offer the instant processing and security or privacy of cryptocurrency payments as well as the volatility-free stable valuation of fiat currencies.
The Treasury said that while today stablecoins are primarily used to facilitate the trading of other digital assets, they may be used in the future as a means of payment by households and businesses.
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The Treasury is worried as responsibilities in many stablecoin arrangements are widely distributed, and fall within the jurisdiction of different regulatory agencies, or outside of the regulatory perimeter altogether, and there is a risk of incomplete or fragmented oversight. As stablecoin arrangements have grown, and continue to grow, rapidly, the risks associated with them do too.
“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system,” said secretary of the Treasury Janet L. Yellen.
“Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter. Treasury and the agencies involved in this report look forward to working with Members of Congress from both parties on this issue.”
This isn’t the first time the Treasury has scrutinised cryptocurrencies, as in May 2021 it was considering new proposals to clamp down on the anonymity of the digital currencies by requiring businesses to treat virtual transactions as the do fiat currencies like the US dollar.
In September, it even took steps to impose sanctions on virtual currency exchange Suex for its alleged role in facilitating financial transactions for ransomware actors. The Treasury stated that Suex had facilitated transactions involving illicit proceeds from at least eight ransomware variants.
