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Biden’s PWG report on stablecoins and the verdict is….

AMBCrypto | Shraddha Sharma | Nov 2, 2021

America flag - Biden's PWG report on stablecoins and the verdict is....The much-awaited U.S. Treasury Department-led regulatory report has called for more regulations around stablecoins.

The President’s Working Group on Financial Markets (PWG) is of the view that “stablecoins could be more widely used in the future as a means of payment.”

It is in this context that Secretary of the Treasury Janet L. Yellen commented,

“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system.”

Yellen also called the current oversight “inconsistent and fragmented,” with the expectation to change that while working with members of the U. S Congress.

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It’s worth noting, however, that the report in question soon attracted a lot of comments. Congressman Tom Emmer, for instance, was one to share some of his initial thoughts. He said,

“With its stablecoin report, the PWG seems to try to force Congress to choose between handing over regulatory power to bureaucrats or risking the unchecked FSOC [Financial Stability Oversight Council] stamp out crypto innovation.”

Meanwhile, another key suggestion made by the report pertained to requiring “stablecoin issuers to be insured depository institutions.” What this essentially means is that issuers should be regulated like banks.

In response to the report, the Acting Comptroller of the Currency Michael J. Hsu commented,

“I fully support the recommendations in today’s paper. Stablecoins need federal prudential supervision to grow and evolve safely. The interagency paper identifies the risk of stablecoin runs as the top concern.”

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The report also touched upon regulatory authorities and the question of jurisdiction. It stated,

“In addition to existing AML/CFT regulations, stablecoin arrangements and activities may implicate the jurisdiction of the SEC and/or CFTC.”

Meanwhile, the U.S Department of the Treasury said that in the context of maintaining market integrity and investor protection, activities related to digital assets fall under the jurisdiction of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC).

Simply put, it recommended giving the SEC and CFTC broad enforcement and oversight authorities.

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MarketWatch | Chris Matthews | Nov 1, 2021

Stablecoins should be regulated like banks, Biden administration says

The Biden administration called on Congress to quickly pass new legislation that would require stablecoins to be issued by insured banks that are overseen by federal banking regulators, in a report issued by the President’s Working Group on Financial Markets on Monday.

Stablecoins like dai, tether and USD coin are a kind of digital asset that pegs its value to the U.S. dollar, and have become widely used to facilitate trading in popular cryptocurrencies, including bitcoin and ether. Their stable value makes them an attractive instrument for cryptocurrency investors to store uninvested funds.

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The total market capitalization of the most popular stablecoins has grown more than 500% over the past year to $127 billion, according to the Treasury Department, and the vast majority of the investment is in a handful of dollar-denominated tokens.

The document outlines a variety of risks that stablecoins pose to crypto investors and the economy more broadly, including risks related to a so-called “run” on a stablecoin’s backing assets. Many popular stablecoins are backed by real assets, and maintain their value by promising to always exchange one token for one U.S. dollar . If investors lose confidence in the assets backing a stablecoin, it could trigger “a self-reinforcing cycle of redemptions and fire sales of reserve assets,” the report says.

“Runs could spread contagiously from one stablecoin to another, or to other types of financial institutions that are believed to have a similar risk profile,” the document continues. “Risks to the broader financial system could rapidly increase as well, especially in the absence of prudential standards.”

In addition to banning any entity that is not an insured and regulated deposit-taking institution from issuing stablecoins, the report suggests legislation should also require that providers of custodial cryptocurrency wallets to be subject to federal oversight.

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The document also says that stablecoin issuers could be declared as engaged in systemically important activities to the financial system by the Financial Stability Oversight Council, which would then subject them to enhanced supervision, likely by regulators at the Federal Reserve.

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