Today’s stablecoin hearing in front of the House Financial Services Committee wasn’t about stablecoins, per se, but rather the administration’s recent report on how to deal with them.
Discussion centered on a December report from the President’s Working Group on Financial Markets, colloquially known as the Plunge Protection Team (PPT), outlining a regulatory framework for the cryptocurrency.
Hearing testimony from Nellie Liang, Treasury undersecretary for domestic finance, lawmakers honed in on questions about whether the cryptocurrency would undermine the strength of the dollar as the world’s currency.
The hearing started out with remarkably little by way of partisan politics, barring an initial swipe by the committee’s ranking Republican, Rep. Patrick McHenry of North Carolina, who criticized the report for “Democratic orthodoxy” by ignoring regulatory work on stablecoins at the state level — notably New York — and for highlighting the risks of stablecoins, but not the benefits they bring.
“I hope that today we can think bigger and more comprehensively, and discuss the potential benefits of increased use of stable growths,” McHenry said. “The policies we develop must promote private sector innovation, and foster competition to build a resilient product without creating risk. We should not, as this report does, limit our focus to only those risks, and we should not focus only on a federal structure.”
When he complained that the working group ignored the question of state-chartered credit unions and banks issuing stablecoins rather than Federal Deposit Insurance Corp. (FDIC)-covered federal banks, Liang replied that the President’s Working Group concluded that a “more consistent, less fragmented framework is preferred.”
Read more: White House Seeks Stablecoin Regulations
McHenry asked, “Does that also mean that the President’s Working Group would think that we shouldn’t have state-chartered credit unions or banks by that same notion?”
Protecting the Dollar
Republican Rep. Andy Barr of Kentucky suggested that as the major stablecoins are all denominated in dollars, their “adoption would likely not compromise the dollar as the world’s reserve currency.”
Liang replied, “I believe stable coins that are stable, and can deliver a stable value tied to the dollar would benefit the U.S. dollar.”
Barr then jumped into central bank digital currencies debate, which focuses on whether China’s digital yuan can imperil the dollar’s position as the world’s reserve currency. He suggested that if “dollar-backed stablecoins such as USDC are adopted, the threat to the dollar from cryptocurrencies and other central bank digital currencies is diminished.”
The ability of tech firms to issue stablecoins — which the PPT report wants to ban in favor of insured federal banks — led Minnesota Republican Rep. Tom Emmer to argue that banks “should not be the only institutions in the ecosystem with dibs to issue the potential array of financial products that the President’s Working Group report simply lumps together as a stablecoin.”
Barr focused on protecting the dollar’s position as the world’s reserve currency, pushing the idea that private stablecoins could co-exist with a central bank digital currency — a digital dollar.
As for the dollar’s status, Barr suggested that dollar-backed stablecoins like Circle’s USD Coin “would benefit the U.S. dollar” — something Liang agreed with, if somewhat cautiously. Nor, she added, would private stablecoins interfere with a central bank digital currency (CBDC).
Another area of focus, naturally, was the potential stablecoins have to cause economic problems.
Rep. Ed Perlmutter, a Colorado Democrat, compared stablecoins to money market funds, pointing the Sept. 16, 2008, incident when Reserve Primary Fund broke the buck.
Questioning whether stablecoins were a currency, “a medium of exchange that a million people are using back and forth” or “more like an investment,” Perlmutter said, “We saw with money markets, even though we didn’t back them [with FDIC-type protection] because so many people used them as currency or as a payment medium, we ended up backing them.”
Referring to cryptocurrencies in general, Rep. Emanuel Cleaver, a Missouri Democrat, said he was most concerned about the ability of smaller, unlicensed issuers to commit outright fraud.
“I’m suffering from Ponzi paranoia,” Cleaver said. “I think of Bernie Madoff and how easy it would be for us to have some kind of devastating economic problem as it relates to this whole new digital currency.”