The Biden administration is calling on Congress to pass legislation that would strengthen government regulation of stablecoins, a form of cryptocurrency that has soared in popularity in the past year.
FILE - The Treasury Building is viewed in Washington, May 4, 2021. In a 22-page report issued Monday, Nov. 1, 2021, the Treasury Department and several other regulators said the legislation should require that stablecoin issuers become banks, which would potentially subject them to a wide range of rules, including those requiring that banks hold sufficient cash reserves and implement measures to prevent money laundering and other illicit activities.
“The agencies believe that legislation is urgently needed to comprehensively address the prudential risks posed by payment stablecoin arrangements,” the report said. Some of those regulators have already taken a tough line, such as SEC Chair Gary Gensler, who has said stablecoins can be used for money-laundering, tax avoidance, and to circumvent U.S. financial sanctions.
The explosive growth of stablecoins and the risks they pose to the financial system have quickly concentrated the minds of government officials on what kinds of regulation might be needed. Large banks have also urged that stablecoins be required to abide by the same rules they do, and even some stablecoin issuers have called for clear regulations to bring some order to the industry.
If those assets were to plunge in value — as commercial paper did in previous market meltdowns, in 2008 and in 2020 — that could make it impossible for a stablecoin issuer to maintain its $1 peg. That could further fuel panic among investors.the CFTC “If we’re going to have something that looks just like a money market fund or a bank deposit or a narrow bank and it’s growing really fast, we really ought to have appropriate regulation,” Fed Chair Jerome Powell said in congressional testimony earlier this year. "And today, we don’t.”
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