Partisan Battle Lines See Crypto Stablecoin Payment Regulation Stalling Out

Two congressional hearings later, and crypto’s future in the U.S. remains as uncertain as ever.

Fresh from Tuesday’s (April 18) House Financial Services Committee hearing on the role of the Securities and Exchange Commission (SEC) and its ability to regulate cryptocurrency firms, lawmakers met again Wednesday (April 19) for a hearing, titled “Understanding Stablecoins’ Role in Payments and the Need for Legislation.”

Held by the newly formed House Subcommittee on Digital Assets, the hearing on stablecoins underscored that a sizable vacuum still exists at the federal level when it comes to the prospect of comprehensive legislation around digital assets, no matter their use case.

As PYMNTS wrote when first reporting on the 73-page draft bill under discussion in Wednesday’s hearing, there existed the potential for Congress to bring stablecoins deeper into the regulatory fold by passing first major piece of crypto legislation that lawmakers have so far shared in 2023.

The bill under consideration would allow both banks and non-banks to issue stablecoins.

Those hopes would be dashed by what observers have described as bipartisan bickering amongst the lawmakers assembled.

Read more: Stablecoin Bill Enters Congress as US Lawmakers Eye Currency’s Future

Democrat-Republican Gulf

“I want to reiterate the urgency for those of us in this room to work together to pass payment stablecoin legislation,” said the subcommittee Chairman French Hill, R-Ark., to start the hearing.

Hill highlighted, “Recent reports indicate digital asset developers are leaving America to go to countries that have a more established regulatory framework for digital assets,” calling the situation “not good” for innovation, jobs, or consumer and investor protection.

The discussion draft of stablecoin regulation, titled “A bill to provide requirements for payment stablecoin issuers, research on a digital dollar, and for other purposes,” was authored by then-Chair Maxine Waters, D-Calif., and ranking member Patrick McHenry, R-N.C., of the House Financial Services Committee when Democrats controlled the House.

Now Republicans control the House, meaning Waters and McHenry’s roles have been flipped.

In an interview with PYMNTS’ Karen Webster last year, McHenry said he wanted to focus on stablecoins if Republicans retook the House.

For her part, Waters emphasized during the hearing that the stablecoin bill being discussed was written before the disastrous collapse of FTX went on to rattle confidence in the crypto sector and drew greater federal scrutiny to its operational practices.

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

Waters added that Republicans and Democrats had never wrapped up their negotiations over disagreements regarding elements of the drafted bill, particularly around the issue of state vs. federal oversight of stablecoin issuers.

“Although it has language that states nothing in the legislation will preempt states, in practice I think there are a number of provisions that give federal regulators veto authority over state regulators and their judgments and oversight so that would be counterproductive and provide a disincentive for companies to take a state path,” highlighted Adrienne A. Harris, superintendent of the New York State Department of Financial Services, and a witness for the hearing.

“As members of this committee contemplate federal legislation for stablecoins, I believe the best path forward is to build on the well-established dual banking regulatory system — where state and federal regulators share supervisory and regulatory authority,” Harris added.

Watershed Moment

“[This stablecoin draft bill] does not represent a final product of any kind. I think we’re starting from scratch. Disregard the bill that has been posted altogether. … We should move very quickly to establish a [new] stablecoin bill and get that legislation going,” Waters said.

Rep. Stephen Lynch, D-Mass., the senior Democrat on the digital assets subcommittee, called the language in the bill, as published, “outdated,” adding that it fails to reflect and integrate any lessons learned from the crypto winter of last year.

Lynch separately went on to urge his fellow lawmakers to ask “whether stablecoins are even needed.”

“Our financial system has a problem,” said Jake Chervinsky, chief policy officer of the trade group Blockchain Association, and a witness during the hearing. “It is stuck in the analog era of the last century, constrained by intermediaries who act as gatekeepers and middlemen to outdated infrastructure that has failed to keep pace with the digital age.”

Thanking the industry witnesses, who also included stablecoin issuer Circle’s head of global policy, Dante Disparte, Hill closed the hearing by saying, “I thought the conversation was very helpful to clarifying the direction to take on stablecoin legislation. I certainly have heard unanimity from the panel that a regulatory framework from Congress is something that would benefit the U.S. economy and U.S. inventors and consumers.”

Whether that regulatory framework will ever make it to the Senate, much less get signed into law by the president, remains to be seen.