USA: Draft law calls for strict regulation of Stablecoins

US delegates call for strict regulation of Stablecoins

A new draft law in the USA wants to get Stablecoins by the throat. Proponents see it as an effective means of consumer protection, but the crypto-sphere remains sceptical.

Three members of the US Congress submitted a bill to regulate Stablecoins on 2 December. The aim is to better protect consumers against the risks posed bei Bitcoin Pro by the Stablecoin plans of Facebook and Co. Whether the law will actually be passed is questionable. After all, the current legislative period will end in just a few weeks.

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A press release states that the Corona pandemic has boosted consumer interest in the FinTech sector. At the same time, the virus has increased the economic hardship of many households. According to Rashida Tlaib, the initiator of the draft law, the STABLE Act is particularly concerned with the protection of people with low and middle incomes. Her party colleague Jesús „Chuy“ García made a similar statement:

Congress must ensure that the new financial technologies and means of payment do not exploit vulnerable users. The STABLE law does just that – it promotes innovation while protecting consumers.

Stablecoins only with a banking licence

The proposed law would significantly raise the barriers to the issue of a stablecoin. In the future, issuers would need a banking licence and would be required to comply with the regulations applicable to banks.

Publishers would still need six months‘ advance approval from the Fed and the Federal Deposit Insurance Corporation (FDIC). Finally, in addition to ongoing risk analysis, issuers would be required to have the necessary reserves with the Fed or the FDIC. This would guarantee the redemption of the Stablecoin in US dollars.
Mixed reactions

Several US consumer protection organisations have lent their support to the draft law. Raúl Carrillo, head of the Public Money Action organization and a staff member of Yale Law School said

By extending federal banking regulation and consumer protection to new forms of „deposits“, the STABLE Act addresses the increase in „shadow payments“ and „shadow banks“ – forms of financial activity that, regardless of their specific legal and technological design, justify robust, preventive and comprehensive regulation.

As was to be expected, the crypto-community reacted negatively, however. The quote: Stablecoins and other crypto-projects should not be treated like banks. Meltem Demirors, Chief Strategy Officer of CoinShare, said in a tweet that the law would have a detrimental effect on low-income earners:

Crypto-currencies REDUCE the cost of providing services to populations that have been excluded from the banking sector in the past. Rising costs and compliance requirements are forcing companies to restrict access for unprofitable customers.

While the proposed legislation remains controversial, it does not at least call for a general ban on Stablecoins. In the EU, however, such considerations have occurred repeatedly. However, the argument is not so much based on the risk to low earners as on the perceived threat to the stability of the financial system.