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The President’s Working Group on Financial Markets (PWG), joined by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), released a report on stablecoins on Monday, November 1, calling for rapid regulation.

The report on stablecoins and the need for regulation in the US

The 22-page report calls for strict regulation of stablecoins, which are not as volatile as traditional cryptocurrencies because they are pegged to fiat currencies, but are often used to facilitate trading with other digital currencies rather than as a financial instrument in their own right.

In order to prevent these coins from becoming a kind of digital currency in disguise, the US Treasury would like to require the companies issuing these coins to become like banks, with all the regulatory and legal implications that this status imposes.

This initiative would also make it much more complicated to create currencies that do not have adequate liquidity reserves, countering their use for money laundering.

The report states:

“The agencies believe that legislation is urgently needed to comprehensively address the prudential risks posed by payment stablecoin arrangements”.

Back in July, Treasury Secretary Janet Yellen called for the regulation of stablecoins because of their steady growth, which has resulted in three of them, Tether, USD Coin and Binance USD, being among the top ten cryptocurrencies by capitalization.

Stablecoins regulation
Stablecoin regulation

Stablecoins are a possible risk for the financial system 

Two months ago, SEC chairman Gary Gensler warned of the risks associated with the exponential growth of stablecoins. Gary Gensler pointed out the danger that these new currencies could easily be used for money laundering, tax avoidance and tax evasion.

There are currently around 200 stablecoins with a total market value of $130 billion on the markets. But it is also the issuers of stablecoins themselves who have reportedly called for clear rules to stop what is seen as the unbridled growth of new currencies that could cause problems for the entire market.

This is because many of the issuers of these instruments could be at great risk of a speculative bubble.

Last June, the chairman of the Boston Federal Reserve warned of the risks associated with the stablecoin market:

“I do worry that the stablecoin market that is currently, pretty much unregulated as it grows and becomes a more important sector of our economy, that we need to take seriously what happens when people run from these type of instruments very quickly. And just like the money market funds caused a bad disruption in credit markets, I think a future financial stability problem could be occurring if we don’t start thinking carefully about what happens to things like stablecoins next time we have a bad market difficulty”.

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