U.S. Lawmakers Eye Stablecoin Regulation to Safeguard Dollar Dominance
Summary:
U.S. lawmakers are shifting their attention toward stablecoins due to their everyday consumer utility and stability compared to traditional cryptocurrencies. However, concerns have emerged over their potential misuse by illegal entities. This has prompted calls for regulatory oversight, as failure to do so could impact the U.S. dollar's dominance. Several legislative initiatives are underway to implement such oversight, but many challenges remain, including gaining White House support and incorporating the bill into a broader legislative package. Meanwhile, experts assert stablecoins will continue to thrive due to their attractiveness to those in countries with weak currencies, even if regulatory action is not taken.
Stablecoins, due to their utility for everyday purchases, have recently drawn the attention of U.S. lawmakers. Unlike traditional cryptocurrencies such as Bitcoin (BTC) or Ether (ETH), they are protected from fluctuations. However, concerns are raised over the potential use of stablecoins by illegal entities such as drug dealers and terrorist organizations. There are fears that the lack of stablecoin regulations could eventually undermine the dominance of the U.S. dollar.
Circle's Dante Disparte told CNBC in January that any unlawful activities harmful to the U.S. dollar would also negatively impact the U.S. economy, the banking sector, payments and individuals. Timothy Massad, the former chairman of the Commodity Futures Trading Commission and current research fellow at Harvard University, expressed his concerns in a recent paper. He stated that the lack of regulatory oversight on stablecoins might enable rogue agencies to circumvent U.S. economic sanctions, thereby compromising U.S. economic and political objectives.
Interestingly, Massad's paper was published on the same day U.S. Senators Cynthia Lummis and Kirsten Gillibrand proposed the Lummis-Gillibrand Payment Stablecoin Act. This bipartisan bill aims to establish a regulatory framework for payment stablecoins, which according to a press release from Lummis, will "promote U.S. dollar dominance while preserving the dual banking system.”
Meanwhile, Maxine Waters announced on April 25 that the final version of the McHenry-Waters stablecoin bill, which has been under development for some time, would soon be ready. Massad lauded the Lummis-Gillibrand bill as an essential step forward towards providing a regulatory framework for stablecoins.
Despite these efforts, there are concerns that the stablecoin market might start denominating in non-dollar currencies. For instance, the Markets in Crypto-Assets Regulation (MiCA) regulatory regime, set to come into effect in Europe by the end of June, might introduce more competition in this sector. "All conditions are in place to allow a transition towards a balance between euro and dollar stablecoins in the long run," said Jean-Marc Stenger, CEO at France's Societe Generale - Forge.
Austin Campbell, founder and managing partner of Zero Knowledge Consulting, warned in 2023 testimony before the U.S. House Financial Services Committee’s Subcommittee on Digital Assets, Financial Technology that the stablecoin market is shifting outside the United States to places such as Singapore, Dubai, and the European Union.
Despite these challenges, George Leonardo, founder of Cap Hill Crypto, is optimistic about the legislative future of stablecoins, citing recent discussions between Senators McHenry, Waters and Schumer along with positive comments from Senate Banking Chairman Sherrod Brown. Upcoming elections in the U.S. and subsequent changes in Congress could also stimulate legislative action.
According to Jaret Seiberg, who heads TD Cowen's Washington Research Group, the potential approval of a stablecoin legislation in 2024 could result in mergers between banks and stablecoin issuers. However, he also noted that the bill has to overcome significant obstacles like gaining support from the White House and being integrated into a broader legislative package.
Even if the U.S. Congress takes no action, Massad believes that stablecoins will continue to flourish. He considers these tokens as a popular means for individuals in countries suffering from weak currencies to acquire a dollar substitute. Nevertheless, there is a growing consensus that bringing stablecoins under U.S. regulations is a better alternative than allowing them to operate outside the law.
Published At
4/29/2024 4:41:14 PM
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