The US Treasury Department wants stablecoins to be issued by banks, which will subject the cryptocurrency to banking regulations in the country.
A new report from the President’s Working Group on Financial Markets is urging Congress to pass legislation that will make this possible. The panel is headed by Janet Yellen, the US Treasury Secretary.
Should Congress not pass any legislation, a recommendation has also been made for the Treasury Department’s Financial Stability Oversight Council to label some stablecoin activities as “systemic risks.”
Stablecoins are a kind of cryptocurrency that is considered, as its name suggests, more stable in terms of volatility.
US Treasury Wants Stablecoins to be Issued by Banks
The US Treasury Department wants stablecoins to be issued by banks, which will therefore subject them to banking regulations, according to a report by The Verge. In order for this to happen, Congress is being urged to pass legislation.
This is based on a new report from the President’s Working Group on Financial Markets, which is headed by Treasury Secretary Janet Yellen.
According to The Verge, “The report recommends legislation that would guard against stablecoin runs, address concerns about payment system risk, and address additional concerns about systemic risk and economic concentration of power.”
“Failure of stablecoins to maintain a stable value could expose stablecoin users to unexpected losses and lead to stablecoin runs that damage financial stability,” the US Treasury Department said in a statement.
Should Congress fail to pass appropriate legislation, the panel has recommended that the US Treasury’s Financial Stability Oversight Council should label certain stablecoin activities as “systemic risks.”
Labeling them as such will make it possible for stablecoins to be subjected to federal scrutiny.
What are Stablecoins?
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Investopedia has defined stablecoin as “a class of cryptocurrencies that attempt to offer price stability and are backed by a reserve asset.”
Stablecoins are said to have the benefits of both cryptocurrency and fiat currencies, which are bank-issued currencies that are not backed by commodities. Stablecoins offer the security of payments like any cryptocurrency but are also more stable than fiat currencies.
In contrast, other cryptocurrencies like Bitcoin suffer from high volatility.
Per the statement of the Treasury Department, stablecoins are currently being used in the trading and lending of other digital assets. The President’s Working Group on Financial Markets likewise believes that stablecoins can become a widely used means of payment.
Related Article: Bitcoin, Altcoins, and Stablecoins: What You Should Be Investing In
Examples of Stablecoins
According to Benzinga, there are four types of stablecoins: commodity-backed stablecoins, fiat-backed stablecoins, crypto-backed stablecoins, and seigniorage-style stablecoins.
One example of a stablecoin already in the market includes Tether, which is “backed by gold, traditional currency and cash equivalents,” according to Benzinga. Per a previous Tech Times report, Tether is tied to the US Dollar.
Other examples of stablecoins include the USD Coin, which is also tied to the US Dollar, True USD (TUSD), and Paxos Standard.
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Written by Isabella James
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