New Jersey Rep. Josh Gottheimer on Tuesday unveiled an early draft of legislation aimed at placing definitions around stablecoins, which critics consider susceptible to manipulation, bad actors and collapse the result of insufficient reserve capital.
Qualified stablecoins could be issued either by an federally backed bank or a non-bank that agrees to maintain at least 100% reserve assets consisting of U.S. dollars, U.S. debt or any other assets the Office of the Comptroller of the Currency deems appropriate cash collateral.
Gottheimer’s legislation, which is still soliciting input from Capitol Hill and the crypto industry, will likely be the first of many attempts to structure the new market from Congress and the Biden administration.
“I don’t think we should stifle innovation in the crypto currency market,” Gottheimer, a Democrat, said Monday afternoon.
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A discussion draft released Monday by Gottheimer’s office proposes to designate certain digital currencies as “qualified” stablecoins if they can be redeemed on a one-for-one basis for U.S. dollars.
Gottheimer said Nellie Liang, an under secretary of the Treasury who’s leading regulatory efforts, was supportive of his plan when she appeared before the House Financial Service Committee last week.
“We’ve been very engaged with Treasury and Blockchain Association and many of the businesses in the space,” he added.
Stablecoins, issued by companies like Tether and Circle Internet Financial, have erupted in popularity in recent years. Proponents say stablecoins bridge the ease and speed of more-volatile cryptocurrencies with the stability of national currencies like the U.S. dollar. While many stablecoin issuers keep a pool of dollars to back up the value of the digital token, it’s not always clear whether they can guarantee 100% of redemption requests for traditional fiat currencies. Some policymakers worry that a spike in redemption requests, or a stablecoin “run,” could result in bankruptcy at the issuer and start a domino of insolvency.
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“We welcome the leadership from Representative Gottheimer, who has taken a thoughtful, risk-based approach to stablecoin innovations in the U.S. and how they can fit inside Federal regulatory frameworks,” Dante Disparte, Circle’s chief strategy officer, said in an emailed statement. “Supporting bank and non-bank innovations in the payment system is key to long-range competitiveness and broad optionality for how dollars move in the 21st century.” Gottheimer’s bill comes as Washington attempts to define and regulate the crypto market.
Industry representatives balked at that recommendation, however, and complained that some of the globe’s most popular stablecoins are issued by firms that are not considered banks. Democrats and Republicans in the House and Senate are hard at work crafting crypto statutes in light of the working group’s report. Sen. Cynthia Lummis, R-Wyo., is expected to introduce a major crypto bill at some point this month. Between competing bills, more-urgent domestic priorities and precarious geopolitics, it could be months before lawmakers are able to drum up enough support behind any one bill to send it to President Joe Biden’s desk for signature.
Specifically, the President’s Working Group on Financial Markets suggested restricting stablecoin issuance to banks insured by the Federal Deposit Insurance Corp. to ensure ongoing supervision, prudential standards and access to the government’s safety net if needed. The Biden administration in November urged Congress to enact a litany of legislation and collaborate with other regulatory agencies to make sure stablecoins don’t pose a systemic risk.