The U.S. House Financial Services Committee published a draft stablecoin bill, putting the Federal Reserve in charge of non-bank issuers and proposing a two-year ban on unbacked stablecoins.
On Saturday, 15th April 2023, the U.S. House Financial Services Committee published a draft bill providing a framework for stablecoins. This represents the first major piece of crypto legislation to move in 2023.
The bill proposes a moratorium on stablecoins backed by other cryptocurrencies and a request to study a central bank digital currency (CBDC). This comes after two key incidents over the past year involving stablecoins, including the blowup of terraUSD (UST) and the temporary unmooring of USD coin (USDC) from $1.
Requirements for stablecoin approval
The bill stipulates that issuers must demonstrate technical expertise and established governance. Additionally, the issuers must show the benefits of offering financial inclusion and innovation through stablecoins.
The stablecoin issuer must demonstrate the ability to maintain reserves backing the stablecoins with several instruments. The instruments mentioned include U.S. dollars or Federal Reserve notes, Treasury bills, repurchase agreements, and central bank reserve deposits. These instruments must have certain maturities, such as 90 days or less for Treasury bills and seven days or less for repurchase agreements.
These factors are taken into consideration for the approval of the stablecoin issuer.
A two-year ban on non-tangible asset-backed stablecoins
Part of the drafted legislation includes a two-year ban on issuing, creating, or originating stablecoins not backed by tangible assets. It also establishes that the U.S. Department of the Treasury would conduct a study regarding “endogenously collateralized stablecoins.”
The draft bill also allows the U.S. government to establish standards for interoperability between stablecoins. Furthermore, the bill states that Congress and the White House would support a Federal Reserve study about issuing a digital dollar.
Federal Reserve oversight for stablecoin issuers
Under the draft bill, the Federal Reserve would be responsible for regulating non-bank stablecoin issuers, such as Tether and Circle. Insured depository institutions seeking to issue stablecoins would be subject to supervision by the appropriate federal banking agency.
Non-bank institutions would be subject to Federal Reserve oversight, and failure to register could result in up to five years in prison and a fine of $1 million. The bill also establishes that issuers out of the United States would have to seek registration to do business in the country.
Related; Republicans Plan Ahead Concerning Crypto Regulations
Stablecoin regulation hearing and industry response
On April 19, the House Financial Services subcommittee will hold a hearing on stablecoins. The hearing will feature representatives from Circle Internet Financial, the Blockchain Association, Columbia University, and the New York Department of Financial Services.
The drafted legislation had been circulating among lawmakers since last fall, and it represents a significant step toward the regulation of stablecoins in the United States.
