Republicans and Democrats on the House Financial Services Committee are at odds over how stablecoins should be regulated.
Those divisions were on display at a hearing Thursday before a House subcommittee on digital assets. Democrats balked at giving states a prominent role in overseeing stablecoin issuers and asked for more protection of digital wallets.
Both sides are floating competing version of a new bill that would oversee stablecoins, which are cryptocurrencies linked to a currency like the US dollar or short-term securities, as a way to mitigate the volatility of digital coins and maintain a stable value.
These stablecoins are mostly used to trade in and out of cryptocurrencies, but are increasingly used for traditional banking products like savings accounts.
There is currently little regulatory oversight or FDIC backing of such currencies. Regulators are worried stablecoins could be vulnerable to runs—similar to the financial crisis of 2008 when investors rushed to redeem their stakes, forcing fire sales of the fund shares.
Thursday’s subcommittee hearing comes after Republicans put forth their own stablecoin bill to the surprise of Democrats. Waters suggested during a hearing last month that a stablecoin bill negotiated last fall was no longer valid and that lawmakers may need to start from scratch. Waters has circulated her own draft version of a bill.
“It appears that we’ve shifted further apart from a bipartisan agreement and now considering two different pieces of proposed legislation,” subcommittee ranking member Stephen Lynch, a Democrat, said during Thursday’s hearing.
The subcommittee chair French Hill, a Republican, argued the two sides were making progress. “While there’s still work to be done and I want to emphasize that the similarities between the two proposals are strong and that’s why we’re not that far apart,” he said.
Democrats acknowledged that Republicans have attempted to address some of their issues — such as banning non-bank stablecoin issuers’ access to master accounts at the Federal Reserve as well as the central bank’s discount window.
But, there are still outstanding issues between both sides on the role of state and federal regulators. Republicans’ draft bill would give strong authority to states to continue regulating stablecoin issuers
Rep. Maxine Waters (D, CA), the top Democrat on the full House Financial Services Committee, is also concerned the Republican bill doesn’t have oversight of digital wallets.
Her draft bill would strengthen protection for digital wallets when it comes to separating customer assets from crypto exchanges—so-called comingling — a central issue in the collapse of crypto exchange FTX. The draft bill would also strike direct access to the Fed for non-bank stablecoin issuers.
“Comingling is a serious issues. We’ve seen it with FTX… and that’s one of the issues we’ve got to resolve in this legislation,” said Waters.
Congressman Brad Sherman (D, CA), said there are already money market funds that work much better than stablecoins as a payment system now and could be improved.
“I’m here to channel Nancy Reagan, just say no to crypto and to stablecoins, the biggest oxymoron in the American language,” said Sherman.
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