Top American financial regulatory figures such as Jerome Powell (Federal Reserve Chair), Janet Yellen (Treasury Secretary), and Wally Adeyemo (Deputy Treasury Secretary) have recently expressed their support for Congress passing laws to regulate stablecoins.
On April 17, Senators Kirsten Gillibrand (Democrat from New York) and Cynthia Lummis (Republican from Wyoming) presented a bipartisan bill called the Lummis-Gillibrand Payment Stablecoin Act. The purpose of this legislation is to establish guidelines for payment stablecoins, ensuring consumer safety, fostering responsible innovation, preventing illicit financing, safeguarding American interests, dealing with custody matters, and maintaining the two-tiered banking system.
Consumer Protection: This law requires stablecoin creators to establish separate entities solely for issuing stablecoins. They must strictly follow capital and reserve rules, keeping sufficient funds to match each stablecoin in circulation. Additionally, only stablecoins with a one-to-one correlation to cash or cash equivalents are allowed. The production of unbacked, algorithmic stablecoins is forbidden.
Through the enactment of regulations, stablecoins are given a defined pathway for facilitating swift cross-border payments and fostering the emergence of innovative financial solutions, providing users with enhanced control and convenience over their money. This could lead to significantly decreased transaction fees, particularly when it comes to international money transfers.
The proposed legislation seeks to align international regulations for dollar-backed stablecoins, making it harder for individuals to exploit unregulated offshore versions for illicit activities such as money laundering or terrorist financing. Any entity issuing a USD-linked stablecoin must comply with American anti-money laundering and counter-terrorist financing laws, facing serious consequences if they fail to do so.
The bill aims to safeguard American interests by establishing regulations for digitally issued stablecoins originating from the US. This move strengthens the US dollar‘s position as the primary digital currency in global transactions, thwarting competitors seeking to establish rival financial systems. Consequently, US-issued stablecoins will uphold American values within the digital economy.
When it comes to custody for payment stablecoins: The legislation stipulates that either state-chartered trust companies or depository institutions serve as the official record holders for these digital currencies, along with their reserves. This arrangement is not permitted to include rehypothecation, meaning customers’ assets must be kept distinct from the issuer’s own assets and strictly segregated.
Maintaining the Two-Tiered Banking Structure: This system keeps the current power of state regulators over non-depository trust firms and permits state trust companies and federal or state deposit institutions to launch stablecoins. This balanced regulatory framework recognizes and respects both state and federal responsibilities.
According to the press release, Senator Gillibrand had this to say:
“Passing a regulatory framework for stablecoins is absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers and cracking down on money laundering and illicit finance. The bipartisan Lummis-Gillibrand Payment Stablecoin Act preserves the dual banking system and gives both federal and state agencies roles in chartering and enforcement. It protects consumers by mandating one-to-one reserves, prohibiting algorithmic stablecoins, and requiring stablecoin issuers to comply with U.S. anti-money laundering and sanctions rules. To draft the strongest bill possible, our offices worked closely with the relevant federal and state agencies and I’m confident this legislation can earn the necessary support in the Senate and the House.”
Furthermore, Senators Lummis and Gillibrand have teamed up to create the Lummis-Gillibrand Act, which aims to set up a thorough regulatory system for cryptoassets through legislation.
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2024-04-18 10:56