The U.S. House Financial Services Committee is set to hold a hearing on April 19 to discuss a draft bill released over the weekend on regulating stablecoins, a class of digital currency designed to offer price stability by being pegged to another asset’s value.
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- The proposed bill – which seeks to impose greater oversight on stablecoins and encourage research into development of a digital dollar – would require stablecoin issuers to maintain reserves backing their stablecoins on an at least one-to-one basis.
- Such reserves could include U.S. dollars, funds held as insured demand deposits, Treasury bills, repurchase agreements and central bank reserve deposits.
- The draft bill would also put the Federal Reserve Board in charge of non-bank issuers, while insured depository institutions and insured credit unions that wish to issue stablecoins would be regulated by relevant federal banking regulators or the National Credit Union Administration. Those who issue stablecoins without approval from the regulators would be subject to up to five years in prison and a fine of up to US$1 million
- The proposed legislation also seeks to impose a two-year moratorium on what it calls “endogenously collateralized stablecoins” that are not in existence at the time of the enactment of the bill. Such an endogenously collateralized stablecoin is defined as any digital asset that “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”
- In addition, the proposed bill would direct the Federal Reserve Board to study the impact of a U.S. central bank digital currency, or a digital dollar, especially on its potential impact on the Fed’s monetary policy tools, the country’s financial system and cross-border payment ecosystems.
- “It’s an extraordinary moment for the future of the dollar in the world, and the future of currency on the internet,” Jeremy Allaire, chief executive officer of Circle, which issues the second-largest stablecoin USDC, tweeted on Saturday. “There is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated.”
- The draft bill comes after the crypto market experienced major stablecoin “depegging” events in the past year, or where certain tokens lost parity to the asset they were backed by, including the Terra-Luna collapse.
- Just last month, USDC at one stage lost its peg to the U.S. dollar after regulators took over the failed Silicon Valley Bank and guaranteed deposits, including Circle’s, to prevent a broader run on the banking industry.