Rep. McHenry: ‘Ugly Baby’ of Stablecoin Legislation Will Grow Into a Bill of ‘Practical Consequence’

Congress is out of session. The midterm elections loom.

Rep. Patrick McHenry (R-N.C.) told Karen Webster that regardless of the outcome, stablecoin regulation will be on the agenda when legislators return to the marbled halls, post-November’s voting.

The conversation took place in the wake of McHenry’s now famous remark earlier this month that Democrats and Republicans, in bipartisan cooperation and wrangling have produced an “ugly baby” of tentative guiding principles.

“What we now have is a complicated policy,” he told Webster, “and it’s a complicated legislative text — with compromises within … the nature of legislative compromise does not often create something of beauty. It creates something of practical consequence. And this is what I’m going for.”

At a high level, he said, we need stablecoins — and, among others, the Tether USDT and Circle’s USDC have advantages over bitcoin and its crypto brethren — which are, to put it mildly, wildly volatile and anything but stable.

By way of contrast, with a nod to stablecoins:

“They’re the ‘on-ramp’ to digital assets,” said McHenry.  At least in concept, stablecoins can act as a conversion mechanism for the cash or bank notes we have in our pockets — and give individuals and businesses access to a digitized, orderly payment system.

That’s the ambition — getting there is another matter entirely. McHenry noted that at the moment there are offerings out there in the market that purport to be digitized forms of the U.S. dollar.

“But we don’t have a federal regulatory ‘form’ around it,” he told Webster, “or insight into the assets acting as backing.” The most basic questions must be addressed including the very mechanics of stablecoin payments, their utility and purpose — and how it’s all overseen.

A standardized approach, at the federal level, he said, would do away with some of the fragmentation that’s out there right now, where states are examining or, in the case of New York, have regulated the coins.

Looking ahead, though Congress is out of session, when House Reps and Senators return to the Hill, there will be a frenzied few weeks until the end of the year and the current congressional session. There’s still an opportunity to legislate, as McHenry said, but he made allowance for the fact that real activity might have to wait for next year.

That somewhat elastic timetable is due to the fact that there are secondary concerns that must be addressed — despite the fact that the “big issues have been resolved,” as he told Webster — including the relationship between the owner of the stablecoins and the security components that are inherent in the proverbial plumbing.

There will of course be input from the banks, said McHenry, where thus far support for stablecoins has been a mixed bag: Some banks want to keep payment systems intact, to the exclusion of those digital coins — and others see stablecoins as an opportunity to expand their offerings and tokenize deposits.

Those attributes and complexities will be addressed, said McHenry, as he seeks input from the Treasury Department (and Secretary Janet Yellen) and the Federal Reserve (and Vice Chair Michael Barr).

“I want their support for this legislation so that we can have something resilient that speaks to those concerns over financial stability.”

At least some timetable will be determined by next month’s electoral outcomes, and whether congressional control moves to the Republican Party. In that event, said McHenry, if he winds up being chair of the Financial Services Committee, then stablecoin regulation will be on the agenda (though not the first item out of the gate on that agenda). And even if the status quo holds, and the Democrats maintain control, he told Webster of stablecoin legislation:

“I’m still optimistic  we can come together.”

The post Rep. McHenry: ‘Ugly Baby’ of Stablecoin Legislation Will Grow Into a Bill of ‘Practical Consequence’ appeared first on PYMNTS.com.