Anyone issuing stablecoins in the United States will have to have a banking licence: this is what a bill for the regulation of stablecoins provides for.
The initiative is signed by three representatives of the Democratic Party in the US Congress, Rashida Tlaib, Jesús “Chuy” García and Stephen Lynch, head of the Financial Technology Task Force.
The legislative initiative is called the Stablecoin Tethering and Bank Licensing Enforcement (STABLE) Act.
The aim of the three politicians is to curb the risks posed by new digital payment systems such as stablecoins, particularly those offered by private individuals such as Facebook. The official press release refers to the Libra project, which no longer exists and has been renamed as Diem.
According to them, stablecoins pose new challenges, even though they are pegged to the US dollar. These challenges have also been exaggerated by Covid-19.
This is why a law is needed to give the sector a regulatory framework.
What does the law foresee when regulating stablecoins in the USA?
The STABLE Act has very simple elements which, however, will change the industry forever. It will require:
- That those who issue stablecoins have a banking licence;
- That those offering stablecoin-related services submit to banking regulation;
- That companies or banks issuing their stablecoins be approved by the FED and FDIC at least 6 months before they issue the currency;
- That each company issuing stablecoins has insurance with the FDIC or reserves with the Federal Reserve to ensure that stablecoins can always be converted into US dollars.
It is clear that this type of legislation, if approved, would greatly constrain the industry. Coupled with the desire to make wallets non-anonymous so that exchanges can interact with them, it would imply a major crisis in the sector in the US.
Similarly, the STABLE Act would extinguish some of the controversy surrounding the stablecoins accused of “printing” digital dollars without having the reserves in dollars.
The promoters present it as a law to defend the weakest, those who after Covid and in the absence of government support may fall into criminal projects, linked to stablecoins.
In fact, in the minds of the law’s signatories, initiatives such as that of Facebook’s Libra don’t move in the direction announced, i.e. to favour financial inclusion, but on the contrary represent a danger if not regulated. It is as if the weaker segment of the population were to become “prey” to the giants issuing cryptocurrencies.
MP Rashida Tlaib explains:
“Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color that traditional big banks have is—and has been—critically important. The protections the STABLE Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation”.
According to Congressman Jesús “Chuy” García, Trump’s policies have strengthened tech and web giants and these exploit weak people such as the working class and black people,
“With products that promise inclusion but only undermine our banking system. That’s why I’m proud to introduce the STABLE Act with Reps. Tlaib and Lynch to ensure that new financial tools like stablecoins have proper oversight and protections. Congress must ensure that new financial technologies and payment tools do not prey on vulnerable users. The STABLE Act does just that–it embraces innovation while also protecting consumers”.
Stephen Lynch is even clearer:
“The STABLE Act is a concrete step toward protecting Americans’ finances and ensuring safety and soundness in financial institutions”.
Although this new technology has advantages in terms of inclusion, it does present risks:
“Adopting new technology has its risks and I give great credit to my colleague, Rep. Rashida Tlaib, for recognizing and addressing the need for appropriate consumer protections. In the STABLE Act Rep. Tlaib ensures that our financial regulators have the necessary tools to protect consumers. We cannot outsource the issuance of American currency to private entities and the STABLE Act guarantees that our regulators will be able to effectively oversee the application of this new technology”.
Basically, the law protects not only consumers, but also the existing financial system from the “threat” of stablecoins.
All that remains to be done is to wait and see what legislative path this initiative will follow and whether it will ever become a law passed by Congress.
The response of Tether
Tether, the stablecoin par excellence, could certainly not stand by and watch. With its capitalization of 19 billion dollars, it is definitely the one most interested in a new regulation.
Stuart Hoegner, Tether’s General Counsel, commented on the legislative initiative.
“We are reading the Stablecoin Classification and Regulation Act of 2020. At this time, we have no comment on its provisions or its prospects for passage in the current session of the U.S. Congress. As more governments debate public policy around stablecoins, Tether will be ready to respond and offer the benefit of its success and experience in the space to interested and appropriate parties”.