WASHINGTON– A new report from the President's Working Group on Financial Markets, the FDIC and the Office of the Comptroller of the Currency is calling on Congress to place bank-like rules on stablecoins.
Stablecoins are digital currencies whose value is tied to a real-world asset, most often the U.S. dollar, which is their primary selling point. But many have raised concerns that despite the name, they are not actually stable and are a risk to financial security, according to a statement from the Treasury Department.
Over the last year, stablecoins pegged to the U.S. dollar have increased by nearly 500% to $128 billion outstanding. The report stated stablecoins could be vulnerable to runs and “fire-sales” in ways that could create stress on the broader financial system absent adequate oversight.
The selling point of stablecoins is in the name: their value is meant to fluctuate less than other digital currencies because they are pegged to a real-world asset — in many cases, the US dollar.
But even with this connection to fiat currencies or commodities, regulators believe the risk of stablecoins not actually being stable, hurting investors and undermining financial security is still too high, according to a press release from the Treasury Department.
"The rapid growth of stablecoins as an innovative and unregulated means to engage in speculative digital asset trading, lending and borrowing is in equal measures awe-inspiring and unsettling," said acting Comptroller of the Currency Michael J. Hsu in a statement.
Among the recommendations made in the paper is that stablecoin issuers to be FDIC-insured in case of losses, and that issuers also be restricted in terms of their commercial affiliation with other companies to address any concerns about a concentration of wealth and influence.
The paper also recommends any legislation include provisions requiring custodial wallet providers be subject to federal supervision as well to ensure appropriate risk-management standards.
The digital currency industry responded positively to the recommendations.
"We are fully supportive of the call for Congress to act and establish Federal banking supervision for stablecoin issuance," Jeremy Allaire, co-founder and CEO of payments platform and stablecoin operator Circle, said in a statement to CNN Business.
In its analysis of the paper, NAFCU said particular attention should be paid to:
- The report’s call for the Securities and Exchange Commission and Commodity Futures Trading Commission have broad enforcement authorities covering a broad range of digital asset activities
- The recommendation Congress provide a stablecoin issuer’s prudential regulator with the authority to require that certain stablecoin issuer activities meet well-defined risk-management standards and the authority to limit a stablecoin issuer’s affiliation with certain commercial entities and use of certain user data
- The recommendation the Financial Stability Oversight Council (FSOC), of which NCUA is a member, consider its authority to address stablecoin-related risks to systemically important payment activities.
CFPB Response
Following the release of the report, new CFPB Director Rohit Chopra explained the steps the bureau is taking on this topic, including how the bureau issued a series of orders to collect information on the business practices of large technology companies operating payments systems in the U.S.
In the statement, Chopra said the United States must do more to nurture a fast, safe, and competitive payments system.
“New technologies can help to advance this goal, which would yield enormous benefits for consumers, workers, and small businesses,” Chopra said.
The CFPB further noted it has recently solicited public input on how Big Tech companies might leverage their existing online dominance to rapidly scale the use of digital payment networks, including cryptocurrencies.
“Our solicitation for input follows the agency’s recent issuance of orders to Google, Apple, Facebook, Amazon, Square, and PayPal regarding their payments-related plans and practices,” the CFPB said. “As the Report on Stablecoins notes, established players with large user bases could accelerate the adoption of stablecoins as a payment device, and lead to an excessive concentration of market power.”
The CFPB said it is also actively monitoring and preparing for broader consumer adoption of cryptocurrencies.