A group of US lawmakers has introduced legislation designed to protect consumers from the risks posed by stablecoins such as Libra by requiring issuers to obtain a banking charter.
Put forward by three Democrat members of Congress - Rashida Tlaib, Jesús “Chuy” García, and Stephen Lynch - the Stablecoin Tethering and Bank Licensing Enforcement (Stable) Act, aims to ensure the issuance and related commercial activities of such currencies are strictly regulated.
The lawmakers argue that digital currencies whose value is permanently pegged to or stabilised against a conventional currency like the dollar, pose new regulatory challenges while also represent a growing source of the market, liquidity, and credit risk.
They also claim that the Covid-19 pandemic has left many low and moderate income Americans shut out of traditional financial services. This has left them turning to alternative fintech options, making them vulnerable to bad actors looking to issue stablecoins.
Tlaib, García and Lynch specifically cite the Facebook-backed Libra project, saying that "Facebook has attempted to take advantage of the financial exclusion and gap in the market". Without regulation, projects like this "inherently" present a promise of the potential for “predatory inclusion,” “digital redlining,” and the “colour of surveillance".
This week Libra rebranded as Diem in an attempt to stress its independence from Facebook as it seeks regulatory approval for a 2021 launch.
The Stable Act would not only require stablecoin issuers to get a banking charter, but also to follow all appropriate banking regulations, secure approval from the Fed, the FDIC and appropriate banking agent six months before issuance, and to get FDIC insurance or maintain reserves at the Federal Reserve to ensure that all stablecoins can be readily converted into dollars, on demand.
Says Tlaib: "Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of colour that traditional big banks have is—and has been—critically important.
"From the OCC to the Federal Reserve to those peddling stablecoins, the protections the Stable Act would make possible are more needed than ever amid a pandemic that will breed riskier financial decisions out of necessity because our federal government continues to fail us all by not providing adequate relief legislation."
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