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Stablecoin Report Recommends Congressional Action on Currency

Authored By: Lewis Wood on 11/2/2021

The President's Working Group on Financial Markets, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency have urged Congress to "act promptly" to pass legislation that would ensure proper oversight of stablecoins.

In their highly anticipated report on stablecoins, which are digital assets designed to maintain a stable value by being pegged to a currency or commodity, the agencies said the legislation should address risks to currency users and guard against runs, address concerns about payment system risk and address additional concerns related to systemic risk and concentration of economic power.

In the absence of congressional action, the working group recommended that the Financial Stability Oversight Council consider steps to address the risks mentioned in the report. Specifically, the working group flagged the possible designation "of certain activities conducted within a stablecoin arrangement as, or as likely to become, systemically important payment, clearing, and settlement activities," the report said.

U.S. regulators considering oversight of stablecoins will have to balance the need for greater security against the risk of stifling innovation in a fast-growing corner of the cryptocurrency market.

The market for stablecoins, which are pegged to government-issued currencies, has ballooned to about $130 billion, according to data from Coin Metrics and The Block.

The surging growth of stablecoins has prompted calls for issuers to be regulated like banks. Tighter controls could bolster the market by easing concerns about issuers' ability to redeem coins, or alternatively, choke off growth by adding burdensome regulation in a sector that advocates see as revolutionizing payments and financial services more broadly.

"Regulators are still learning a lot about this rapidly evolving and fast-moving space," said John Popeo, partner at bank consultancy The Gallatin Group. They will have to take a "thoughtful and creative approach in regulating this area, rather than trying to fit stablecoins and other crypto assets into existing pockets under current laws or regulators," he said.

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