One of the most pro-crypto members of Congress, Senator Cynthia Lummis, argues that stablecoins should be issued by banks, and collateralized in cash only.
Cynthia Lummis pushes support for cryptocurrencies
Stablecoins should be backed by cash and may need to be issued by banks, says Senator Cynthia Lummis, one of Capitol Hill’s most ardent supporters of cryptocurrencies https://t.co/wbqP03WveM
— Bloomberg Crypto (@crypto) September 29, 2021
To date, the world’s leading stablecoin, USDt, for example, is issued by a private company that does not have a US banking licence, and it’s not collateralized only in dollars.
However, according to Lummis, a leading advocate of cryptocurrencies in the Senate, stablecoins should be required to be 100% cash-backed, and non-banks should be prohibited from issuing them.
Yesterday, during a Senate speech with a Republican senator from Wyoming, Lummis said:
“It may be the case that stablecoins should only be issued by depository institutions or through money-market funds or similar vehicles. Stablecoins must be 100% backed by cash and cash equivalents, and this should be audited regularly”.
The question of how stablecoins are collateralized is still very much up for debate.
The point is that anyone holding stablecoins should be able to be sure that they can always exchange them for collateral at any time. While no one to date has had any problems exchanging, say, USDt for USD in over six years, the only way to provide this certainty is to ensure that the issuer of stablecoins has sufficient reserves to allow the tokens to be exchanged at par almost immediately.
According to Bloomberg, which reported the news, Lummis’s words suggest that “the outlook for crypto is getting murkier in Washington as lawmakers and regulators seek to clamp down on the burgeoning industry”.
Stablecoin and regulations on the use of dollars
However, one must always distinguish between the diverse cryptocurrencies, and in particular stablecoins (which are not true cryptocurrencies) and the main players in the crypto sector, such as Bitcoin and Ethereum.
Stablecoins are generally pegged to the US dollar, and are therefore often a special target of US government authorities. One only has to think of the numerous issues raised with regard to Facebook’s stablecoin project, Libra, which led to a continuous postponement of the project and even a change of name. Diem, as it is now called, has not yet seen the light of day, and there has been no news about it for some time now.
Stablecoins are being used instead of dollars, but outside the controls to which dollar transactions are subject. Regulators don’t like this, because it means that there is in fact a kind of crypto version of the dollar that can be used in a totally unregulated way.
According to Bloomberg, US Treasury officials are preparing a report on stablecoins, and officials are discussing initiating a formal review by the Financial Stability Oversight Council to determine whether or not stablecoins pose a threat.
The risk is that regulations will be introduced on the use of stablecoins that are very similar to those in place for the use of dollars.