The proposed bill would introduce a new “qualified” designation for certain stablecoins that are redeemable one-to-one for U.S. dollars.
Today, U.S Representative Josh Gottheimer unveiled an early draft of a bill regulating U.S. dollar-backed stablecoins.
The proposed legislation would designate certain stablecoins as “qualified” and institute traditional deposit insurance on stablecoin holdings.
Qualified stablecoins would only be issued by banks or non-bank institutions that satisfy certain regulations.
U.S. Representative Josh Gottheimer (D-NJ) has released an early draft of a bill aimed at setting clear definitions around U.S. dollar-backed stablecoins.
Josh Gottheimer Introduces Draft Bill on StablecoinsThe United States could be moving a step closer to regulating stablecoins.
According to a Tuesday report published by Politico, New Jersey Democrat Rep. Josh Gottheimer has released draft legislation that would set clear definitions surrounding regulation of the fast-growing form of cryptocurrency.
The proposed bill would introduce a new “qualified” designation for stablecoins that can be redeemed on demand on a one-to-one basis for U.S. dollars. These qualified stablecoins would only be issued by banks or non-bank institutions that satisfy certain regulations, including rules set by the Office of the Comptroller of the Currency.
Issuers of qualified stablecoins would have to maintain at least 100% backing in reserve assets, which would take the form of U.S. dollars or other assets the OCC deems appropriate cash equivalents. In most instances, these include extremely liquid, short-term U.S. dollar-denominated debt instruments like U.S. Treasury securities.
In an interview from earlier this month, Gottheimer told Politico that the key motive behind the proposed bill was “harnessing the innovation while ensuring safety and soundness for investors.” He added:
“Certainty’s the key to leadership, and I’m worried that right now you’ve got Bermuda and the Bahamas and France and other places drawing investors and currencies because we have not acted with the alacrity that we should.”
One of the greatest concerns regulators have regarding stablecoins and stablecoin issuers is the quality of their backing and the possibility of “bank runs” that could threaten the stability of the broader financial system. Under Gottheimer’s bill, stablecoin issuers would either have to acquire bank charters or hold their reserves in segregated accounts with regulated banks. This would significantly reduce the risks for both the users and the system as a whole but also increase centralization and limit the competition within the space.
Gottheimer reportedly told CNBC that Nellie Liang, undersecretary of the Treasury who’s leading regulatory efforts on the stablecoins, supported his plan when she appeared before the House Financial Services Committee last week. However, several other Representatives, including Republican Tom Emmer and Democrat Gregory Meeks, opposed the President’s Working Group proposal, which, similar to Gottheimer’s draft legislation, sought to limit stablecoin issuance to banks.
The House Financial Services Committee is expected to decide on stablecoin legislation in the next couple of months. However, between competing bills and geopolitical tensions surrounding Russia and Ukraine, it could take considerably longer for such a decision to materialize.
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