In Brief:
- In its proposed regulation, the Biden Administration would regulate stablecoin issuers as banks
- By doing this, regulators would hope to avoid the possibility of financial panics caused by digital currencies
- A number of companies issue stablecoins including Tether Ltd. and Circle Internet Financial Inc.
Several insiders familiar with the matter have told the Wall Street Journal that the Biden administration is exploring ways to impose bank-like regulations on stablecoin companies, including requiring them to file for bank registration.
Known as stablecoins, these digital tokens are anchored to assets, such as the US dollar, and trade like bitcoin and ether. They are a small portion of the $2 trillion digital asset market but have caught the attention of regulators because of their rapid expansion. Stablecoins are pegged to conventional currencies
Additionally, the administration is expected to urge Congress to consider new legislation to create a special-purpose charter tailored to such firms’ business models.
The rapidly expanding market for privately operated currencies has led regulators across the globe to crack down amid fears they might increase systemic risks, harm investors, and encourage financial crimes.
In the USA the President’s Working Group on Financial Markets, which consists of top regulators who are focused on stablecoins, has already been established in order to combat cryptocurrencies. Moreover, the Treasury Department expects to make a recommendation to the Financial Stability Oversight Council on whether stablecoin activities should be designated as systemically important.
Biden’s administration is expected to make recommendations to the President’s Working Group on Financial Markets in the upcoming report that will likely be released late in October. Meanwhile, a highly anticipated report about the potential issuance of a digital dollar is also set to be released soon by the Federal Reserve.
