The United States Federal Reserve Board has recognized payment stablecoins as a form of money, according to Chair Jerome Powell. During the House of Representatives Financial Services Committee’s semi-annual hearing on Fed policy on June 21, Powell responded to committee ranking member Maxine Waters’ question about the proposed stablecoin bill. The bill, which originated with the Republicans, would be the first crypto legislation in the U.S. if passed.
Waters expressed concerns about the bill, stating that it would create “58 different licenses with federal regulatory approval over only two of the licenses.” The remaining licenses would be issued by states, territories, and other jurisdictions, taking state preemption to a new extreme. In response, Powell acknowledged payment stablecoins as a form of money and expressed the need for a robust federal role in their regulation. He believed that allowing significant private money creation at the state level would be a mistake.
Powell’s stance on payment stablecoins diverges from that of Securities and Exchange Commission (SEC) Chair Gary Gensler. Gensler, in a Senate Banking Committee hearing last year, suggested that stablecoins might require registration and regulation. He has repeatedly stated that all cryptocurrencies, except Bitcoin (BTC), are securities. Powell’s position also contrasts with Commodity Futures Trading Commission (CFTC) Chair Rostin Behnam’s assertion that stablecoins will be considered commodities. This disagreement highlights the need for a clear definition of money, which is typically regarded as a means of exchange, and the intricacies of defining securities and commodities under U.S. law.
Former CFTC Chair Chris Giancarlo also weighed in on the stablecoin bill. In an editorial in The Hill on June 21, Giancarlo highlighted the potential risks associated with granting licensing authorities the discretion to deny services to lawful but politically disfavored businesses. He called this a “glaring omission” that could result in a government policy similar to the Obama administration’s Operation Choke Point. Giancarlo suggested that a solution would be to prevent government licensing authorities from picking and choosing among otherwise lawful activities and conditioning licensure on the denial of legal transactions by stablecoin protocols. Without such safeguards, stablecoin transactions could become subject to the shifting political winds of Washington.
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Overall, the debate surrounding stablecoin regulation underscores the need for a comprehensive framework that defines the regulatory status of these digital assets. Given the growing prominence of stablecoins and their potential impact on the financial system, it is crucial to strike a balance between innovation and investor protection. Regulators and legislators must work together to establish a clear and consistent regulatory framework that fosters innovation while addressing risks associated with stablecoins. By doing so, they can ensure the stability and integrity of the financial system in the face of evolving technologies.
