A coalition of financial authorities in the United States recently listed some recommendations in their new report on Stablecoin regulation.
The report appears sensible and has many elements, which crypto supporters should support. At the same time, it contains a brooding tone of seriousness that could trigger a regulatory power war as there is a lack of proper action in the U.S. Senate and House of Representatives.
Stablecoins, similar to USDC and Tether, are digital currency tokens linked to a basket of assets intended to “peg” the value of each token to a stable currency, like U.S. dollars. As of now, the most fretting element of stablecoin is the assets that back them are not consistent. This has raised deep concerns about their stability and quality.
So, if there is a widespread market downturn, stablecoin backed by delicate instruments could decrease its value quickly when there is a digital currency equivalent of a bank run.
What the report recommends
The latest report also recommends including the issuers of stablecoin into the federal deposit insurance system of the United States. Thus, they are very similar to traditional banks. A federal banking agency regulates and supervises the crypto at the depository institution level. The Federal Reserve regulates and does consolidated supervision of it at the level of the holding company.
The recommendation in the report is an acknowledgment that stablecoins are valid as a potentially useful technological and financial innovation. It also suggests a way for the traditional financial institutions to issue stablecoins of their own. It can be a positive development for the growth of digital currency in the broader financial system.