Bill Accommodates both Bank and Non-bank Issuers
Rep. Gotthiemer’s bill, called the “Stablecoin Innovation and Protection Act of 2022,” defines stablecoins as “qualified” when they are 100% backed by the United States dollar and can be redeemed on a one-on-one basis.
These qualified stablecoins can be issued by an insured depository institution, including both banks and non-bank institutions.
For non-bank institutions, Rep. Gotthiemer argued for provisions mandating that such stablecoin issuers hold asset reserves that amount to a 100% backing of their stablecoins in circulation.
These assets could be US dollars, government-issued securities, or other assets as approved by the Office of the Comptroller of the Currency (OCC).
Apart from stablecoins being fully backed, the bill wants non-bank issuers to hold their reserves in accounts insured by the Federal Deposit Insurance Corporation (FDIC). The OCC, on the other hand, will maintain regulatory oversight over both bank and non-bank stablecoin issuers.
Rep. Gotthiemer aimed the draft proposal at ensuring consumer protection, mitigating the risks of financial instability, and encouraging fintech innovation in the United States. According to a statement by the U.S. representative:
“The expansion of cryptocurrency offers tremendous potential value for our economy. But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers.”
The lawmaker added:
“We shouldn’t stifle innovation in the cryptocurrency market. We should ensure the proper safeguards are in place, and ensure our nation is a leading force in financial technology.”
Effective Regulations for Stablecoins
Stablecoins have grown in popularity and market capitalization over the years, with the two biggest digital assets being Tether (USDT) and USDC. Both are less volatile than Bitcoin and other cryptocurrencies.
However, regulators and policymakers believe these stablecoins come with risks and have expressed concern about whether stablecoins are 100% pegged to fiat currencies.
According to regulators, if these digital assets are not completely backed by fiat as stablecoin issuers claim, there could be a “bank run” that could result in bankruptcy and eventually disrupt the broader financial system.
The United States government has been working toward regulating stablecoins. In November 2021, Senator Sherrod Brown, Chair of the U.S.Senate Committee on Banking, Housing, and Urban Affairs, sent a letter to stablecoin issuers requesting the number of stablecoins in circulation, issuance, and redemption.
Meanwhile, some stakeholders in the industry applauded Gotthiemer’s bill, with Circle’s Chief Strategy Officer and Head of Global Policy, Dante Disparte, saying:
“We welcome the leadership from Representative Gottheimer, who has taken a thoughtful, risk-based approach to stablecoin innovations in the U.S. and how they can fit inside Federal regulatory frameworks. Supporting bank and non-bank innovations in the payment system is key to long-range competitiveness and broad optionality for how dollars move in the 21st century.”
Kristin Smith, the Blockchain Association’s executive director praised Rep. Gotthiemer’s proposal, calling it “the most comprehensive and well-thought-out stablecoin legislation we’ve seen to date.”
Rep. Gotthiemer’s Bill also has the support of Nellie Liang, Under Secretary of the Treasury for Domestic Finance.
As of this writing, the bill is still under discussion and is awaiting input from Capitol Hill.