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House draft bill seeks to regulate stablecoins and study ‘digital dollar'
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(Kitco News) -
The draft of a new bill outlining a regulatory framework for stablecoins was published in the document repository of the U.S. House of Representatives over the weekend, ahead of a House subcommittee hearing on stablecoins later this week. It defines the criteria for acceptable stablecoins and their issuers, outlines the regulators for each type of issuer, and proposes a comprehensive Fed-led study on a possible ‘digital dollar.’
The draft bill “to provide requirements for payment stablecoin issuers, research on a digital dollar, and for other purposes” divides potential stablecoin issuers into two categories for the purpose of regulation. Banks and other insured depository institutions who wish to issue stablecoins would seek approval from the federal banking agencies which already regulate them, while non-bank issuers and prospective issuers would be approved and regulated by the Federal Reserve.
Significantly, the draft does not assume a federal monopoly on the regulation of stablecoin issuance, as it defines a ‘payment stablecoin issuer’ as either an entity “approved or licensed by the appropriate Federal payment stablecoin regulator, as applicable,” or “a registered State qualified payment stablecoin issuer.”
In the context of the bill, the term ‘State’ means each U.S. State, “the District of Columbia, any territory of the United States, and each federally recognized Indian Tribe.”
The bill would prohibit any person or entity who does not qualify and has not been approved “to engage in the business of issuing a payment stablecoin, directly or indirectly in the United States, through any means or instruments of transportation or communication in the United States, or to persons in the United States.”
It also lays out criminal penalties for violators of the proposed regulation. "Whoever knowingly participates in a violation of this section shall be fined not more than $1,000,000, imprisoned for not more than 5 years, or both.”
Crypto firms who have been clamoring for clear guidelines and timely responses from regulators will be glad to note that the draft bill also proposes fixed timelines and obligations for Federal regulators, who must notify applicants about whether or not their application is complete within 45 days of reception and must render a decision on completed applications within 90 days. “If the appropriate Federal payment stablecoin regulator fails to render a decision on an application” within the specified time period, “the application shall be deemed approved,” the bill states.
A federal banking regulator or the Federal Reserve will assess applications based on the “financial resources, managerial or technical expertise, and governance” of the applicant, the public benefit “including on innovation and competition,” the overall “stability of the financial system of the United States,” the “convenience and needs” of the target community, and the applicant’s plan to promote “greater inclusion for businesses and retail consumers, as appropriate, in all jurisdictions and across all racial and ethnic groups and geographic locations.”
To be approved and to operate as a federally-regulated payment stablecoin issuer in the United States, the issuer would have to maintain reserves backing the stablecoins comprised of U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits, “on an at least one-to-one basis.”
The bill also proposes a two-year moratorium on ‘endogenously collateralized stablecoins’ which are defined as “any digital asset (1) in which its originator has represented will be converted, redeemed, or repurchased for a fixed amount of monetary value; and (2) that relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.” This would forbid so-called ‘algorithmic stablecoins’ such as Terra/Luna.
The final section of the bill calls for the Fed’s Board of Governors in collaboration with the relevant regulators “to carry out a study on the impact of a U.S. central bank digital currency (hereinafter referred to as a ‘digital dollar’) with the results to be delivered after one year.”
The study would examine the digital dollar according to a range of financial and legislative priorities, including the potential impacts on “monetary policy tools and decision-making,” financial system and banking sector stability, “the privacy rights and civil liberties of Americans,” other existing U.S. laws and regulations, the status of the dollar as a reserve currency, and “the potential impact of a failure to act or act swiftly, given the speed at which other nations are engaging on this topic.”
The two largest stablecoin issuers, Circle, which issues USDC, and Tether, issuer of USDT, both commented on the proposed bill.
Circle’s CEO Jeremy Allaire took to Twitter over the weekend to share his reaction. “It's an extraordinary moment for the future of the dollar in the world, and the future of currency on the internet,” he said. “While comprehensive, there are clearly open and challenging issues with the bill as proposed, and now is the time for our country and political leaders to really dig in and get this right. The role of the dollar in the world is at stake.”
Kitco News received a statement from Tether on Monday morning laying out their position on the proposed legislation. “We remain hopeful that stablecoin regulation will provide much-needed clarity for larger corporates, institutions, and fin-tech companies looking to enter the crypto market,” they wrote. “We believe that greater regulatory clarity will benefit the digital token economy.”
The House Subcommittee on Digital Assets, Financial Technology and Inclusion will hold a hearing on the proposed legislation entitled “Understanding Stablecoins’ Role in Payments and the Need for Legislation” this Wednesday at 10:00 am EDT. Speakers will include Adrienne Harris, Superintendent of New York’s Department of Financial Services; Dante Disparte, Circle’s Chief Strategy Officer and Head of Global Policy; Austin Campbell, Professor of Business at Columbia Business School; and Jake Chervinsky, Chief Policy Officer of the Blockchain Association.
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