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Leading U.S. financial regulators met on Monday to broaden discussions over a regulatory framework for stablecoins, a type of digital currency that touts itself as a less volatile asset class than other cryptocurrencies.
Treasury Secretary Janet Yellen held a meeting with five federal regulators to discuss the “rapid growth” in stablecoins, according to a Treasury reading of the meeting Monday afternoon.
The country’s leading regulators have recognized the potential of stablecoins as a useful payment method, but have advocated for the establishment of guardrails to protect stablecoin users, the financial system, and national security.
“The secretary stressed the need to act quickly to ensure that an appropriate US regulatory framework is in place,” the Treasury reported.
The meeting brought together the heads of the Securities and Exchange Commission, the Federal Reserve, the Commodities Futures Trading Commission, the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency.
Officials have been briefed by Treasury staff of an upcoming stablecoins report, which will include recommendations to address “any regulatory loopholes” in the current regulatory framework.
Risks to come?
While many cryptocurrencies are not backed by a specific asset, stablecoins tie their value to one or more other assets, such as sovereign currencies. A single selling point for stablecoins: facilitating cross-border payments.
Stablecoins are growing in popularity, reducing blue chip money market funds a bit. The concern is that if left unregulated, stablecoins can be riskier than advertised.
In a December 2020 statement, regulators said they wanted to encourage “responsible payments innovation.” But the statement also raised concerns about possible risks to financial stability that could come from “large-scale and potentially messy buybacks” on stablecoins.
If stable coins continue to attract the attention of money market funds, short term credit markets could be exposed to any stable coin related event.
“I think we have a tradition in this country where [if] public money is being held in what is supposed to be a very safe asset, we have a pretty solid regulatory framework, ”Fed Chairman Jerome Powell told Congress last week.
Regulators in December proposed reserve requirements to ensure stable coin liquidity. Regulators also stressed that stablecoins must comply with all relevant laws regarding anti-money laundering and terrorist financing measures.
“Bringing regulators together will allow us to assess the potential benefits of stablecoins while mitigating the risks they could pose to users, markets or the financial system,” the Treasury noted last week during the public announcement of Monday’s meeting.
Brian Cheung is a reporter covering Fed, Economics and Banking for Yahoo Finance. You can follow him on Twitter @bcheungz.
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