The task force of President Joe Biden’s administration, made up of the Federal Reserve and Congress, published a document calling for regulating the use of stablecoins in the United States.
A previous report, whose preparation ended on July 17, circulated on social networks the next day. The committee’s deliberations on this issue have not yet concluded and are expected to continue in the near future.As said by Twitter user Caitling Long, a bitcoin advocate and finance expert who spent more than 20 years on Wall Street.
A footnote was written in the document with the aspects to be addressed by the working group in the coming days. It reads as follows: “Based on historical lessons, the government has a couple of options: 1) transform stablecoins into the equivalent of public money by a) requiring that they be issued through banks insured by the Federal Insurance Corporation. Deposit o) b require stablecoin icons to be endorsed one by one with the United States Treasury or use Central Bank reserves; or 2) introduce a central bank digital currency and tax private stablecoins until they exist. ‘
The 49-page publication reaches the following conclusions, but does not offer any concrete solution to the problem posed. It limits itself to saying, in three paragraphs, that regulation is overtaken by innovation, which it considers creates an uneven playing field, inasmuch as it is easier and cheaper for technologically advanced companies that offer similar products and services.
In the same way, it makes a review of the history that has passed on this subject. Notes that the problems associated with the production of money remain the same as they were fifty years ago. In the first place, it mentions the use of banknotes from private banks as a relevant aspect to consider.
It is worth remembering that in the nineteenth century before the United States had a national currency, it had more than a dozen banks creating private notes that served as legal tender coins. Due to certain problems with its operation, the US government decided to take control of the monetary system at that time.
Finally, the document adds that, although “it currently appears that stablecoins are used as money. The prices of stablecoins are independent of geography, but not independent of the perceived risk of their backing assets. In this sense, they are compared to the old private ticket system.
Legislators can pass a law to convert stablecoin issuers into Banks insured by the Federal Deposit Insurance Corporation. Source: United States Capitol / wikipedia.org
Legislators to adjust regulatory framework for stablecoins
Later, the report titles a section as new legislation for the United States government to stop using one-to-one parity with stablecoins and the dollar as it currently does using international reserves.
It specifically refers to the fact that legislators can pass a law so that issuers of stablecoins can become Banks insured by the Federal Deposit Insurance Corporation, better known as the FDIC. To do this, they believe that Congress could adapt a set of regulations and oversight activities.
The document refers to the “utility currencies” that JP Morgan uses with its large clients. Source: official-ly cool / wikipedia.org
However, this point has generated controversy among some legislators. They allege that “the bank statutes would be too onerous since stablecoin issuers only operate in the money market.” That is, regulations can be strict and expensive. They have proposed, in turn, subjecting stablecoin issuers to regulations corresponding to a narrow banking statute, which means, for example, “limiting the assets of stablecoin issuers to only central bank reserves or bonds. short-term US Treasury in exchange for being exempt from certain parts of the standard bank. ‘
The United States Congress is also evaluating the possibility of applying a more aggressive and comprehensive approach than would not only include stablecoin issuers but also the banking sector which has created poor regulatory arbitrage for decades, allowing them to adapt to technological development. This step means the modification of some current economic concepts. For the above, they consider that it is imperative to have a regulatory framework for stablecoins.
Summary of the Fed document
At the beginning of the document, a summary of its content was published that reads the following verbatim:
The newest type of private money is now upon us, in the form of stablecoins like Facebook’s “Tether” and “Diem” (formerly Libra). Based on the lessons learned from history, we argue that funds produced by the private sector are not an effective means of exchange because they are not always accepted at par and are subject to runs. We present proposals to address the systemic risks created by stablecoins, including regulating stablecoin issuers such as banks and issuing a central bank digital currency.
Federal Reserve Document.
The report dates back to 2009 when bitcoin hit the market. Since that year he mentions that more than 8,000 cryptocurrencies have been created. Therefore, he explains that “cryptocurrencies are digital representations of tokens that reside on the blockchain.”
Next, the document indicates that cryptocurrencies are divided into three categories: In the first class are those that do not have any support such as bitcoin, which are known as fiat cryptocurrencies, whose main characteristic is that they have no intrinsic value.
For the Fed there are also “utility currencies”, such as the one used by the finance company JP Morgan, intended exclusively for its large clients. In last place are stablecoins or stablecoins, which are intended to be used as a form of private money. These pieces are endorsed one by one by the United States government.