Compliance fear and republican rejection

On December 14, the United States Senate Committee on Banking, Housing, and Urban Affairs held a hearing entitled “Stablecoins: How Do They Work, How Are They Used, and What Are Their Risks?” The oral and written testimonials focused heavily on the latter two topics as “know your customer” compliance concerns and looming US dollar inflation dominated the debate.

Less than a week after the House Financial Services Committee hearing on digital assets, which was widely viewed as “constructive”, the Banking Committee meeting took place. I expect heavy. Senator Sherrod Brown, Democrat from Ohio, chair of the committee and convening the hearing, is famous for his critical stance on the cryptocurrency sector, and the President’s Task Force on Financial Markets (PWG) report in November showed that stablecoins are effective in due its structural proximity to fiat money is in the legislature’s limelight.

Compliance fear

Senator Brown let off steam with his opening speech, bringing to life a spirit of the Great Depression: “These tokens can crash if cryptocurrency markets collapse nearly 30% in one day. History teaches us to be concerned when any investment is so far out of reality. Look at the stock market crash of 1929. “

Compliance fear and republican rejection
Compliance fear and republican rejection

Brown reiterated his restrictive approach when he found that even without joint action by both houses of Congress, a number of regulators are already sharpening their tools to preside over stablecoins, from the Securities Commission to the Federal Reserve Treasury.

The barrage intensified with statements from Alexis Goldstein, director of financial policy at the Open Markets Institute. According to some observers, this liberal think tank has become influential by stimulating the Democratic Party’s dynamic to curb tech goliaths like Meta and Google.

Goldstein seized the opportunity to harshly attack decentralized financial projects – which in their opinion are “largely inconsistent” with the existing know-your-customer, anti-money laundering and anti-terrorism financing standards – and to question the potential of stablecoins, To become a widely used payment billing tool:

A recent World Economic Forum report concluded that stablecoins have no financial inclusion benefits because they are subject to the same or greater barriers than pre-existing financial options, including the need for the internet and smartphones. […] As someone who played with sending [stablecoins]Both personally and in my work, Western Union often makes it look cheap when you add up all the fees you need. “

Goldstein’s devastating sentiment was met by Dante Disparte, Circle’s Chief Strategy Officer and Global Policy Chief, who highlighted a number of digital asset use cases, such as empowering women and minority entrepreneurs and providing aid. Disparte called on the legislature to follow a “do no harm” approach to regulation:

I claim we will win this race [de las monedas digitales] due to the sum of the free market activity that takes place within the regulatory framework of the United States with digital currencies and blockchain-based financial services. The sum of these activities promotes America’s economic competitiveness and national security interests.

The Circle manager said the stablecoin sector was still in its infancy and that those who accuse it of failing on financial inclusion mistakenly assume that stablecoins have an impact similar to that of the dollar. The argument was echoed with Circle’s recent announcement that its stablecoin USD Coin (USDC) will rely on the Avalanche blockchain to offer lower fees and faster processing of smart contracts.

The problem of the issue

Probably the most technically nuanced part of the audience had to do with the future legal classification of stablecoins. At the time, it was Senator Pat Toomey, a Republican from Pennsylvania, who led the opposition to the Democratic scare tactics by suggesting that stablecoin issuance should not be restricted to secured custodians. This point appeared in Toomey’s policy, which was made public prior to the hearing.

The PWG, led by the Democrats, had previously spoken out in favor of restricting the issue of stablecoin to secured custodians. Toomey’s reaction to Brown’s first statement was a clear message: Any final decision on stablecoins “is a matter for Congress”.

The need to treat the issue of stablecoins as a matter of the Federal Charter was set out by Jai Massari, a partner in the international law firm Davis Polk, in his written statement:

A new and well-designed federal charter could do justice to a business model based on the issuance of stablecoins that are fully funded by short-term cash and the provision of associated payment services. This charter could impose requirements on the composition of foreign reserves while adapting leverage ratios or risk-based capital requirements and other requirements to the nature of the business model.

According to Massari, regulating stablecoin issuers similar to the banks insured by the Federal Deposit Insurance Corporation would be “impracticable” and “unnecessary”. He added that companies are already able to limit the risk of their stablecoin reserves and “require that the market value of those reserves be no less than the face value of the stablecoins in circulation”.

A silent response

After the hearing, the speaker’s positions were not affected. Senator Brown shared an excerpt from his statement on Twitter, calling stablecoins a “mirror of the same system”. [bancario] Broken”:

Senator Toomey reiterated his enthusiasm for the new technology and his determination to work closely on its friendly regulation:

Key participants in last week’s most constructive hearing in the House of Representatives eloquently ignored the banking committee meeting on social media. Crypto Twitter has also largely remained silent on this matter.

What’s next?

While the hard work of crafting new regulatory rules can take years, with stablecoin regulation there are clear signs that rapid progress is being made. However, not all advances appear favorable.

The PWG report calls for comprehensive monitoring to be introduced as soon as possible. In line with Treasury Secretary Janet Yellen’s opinion, the group called on Congress to require that stablecoin issuers be secured custodians.

It took the Republicans a little over a month to devise their reverse plan and defend it at the Senate hearing. The obvious problem for those who want stablecoins to retain their non-bank identity is that currently the pool of Senator Toomey’s principles is a collection of vignettes that could fit on a single sheet of paper during the PWG- Report contains 26 pages of dense policy proposals.

Perhaps an even bigger problem is that the approach formulated by the PWG is supported and probably inspired by the members of the incumbent presidential administration. If Republicans are serious about taking the non-banking side of the stablecoin divide and proposing an alternative regulatory approach to this asset class, they’d better be solidly consolidating their views as well.

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