Introduction
Negotiations between Democrats and Republicans on the House Financial Services Committee came to a crashing halt on Thursday, dashing hopes for a broad, bipartisan compromise on legislation regulating stablecoins. While both parties agree on the need for stablecoin legislation, Democratic Rep. Ritchie Torres of New York cites excessive deference to the White House and financial regulators as the primary obstacle to reaching a compromise.
The Stablecoin bill and its Impact
The stablecoin bill, aimed at establishing minimum standards for stablecoin reserves, requiring monthly disclosure reports, and defining rules for dollar redemption, has been a topic of bipartisan negotiation since the White House urged Congress to regulate stablecoins in the fall of 2021. Stablecoins are a type of cryptocurrency designed to maintain a one-to-one relationship with the US dollar (DXY, -0.13%). These coins are commonly used by crypto traders to park uninvested funds.
The Potential of Stablecoins
Crypto companies like Circle, which issues USD Coin (USDC) (USDCUSD, +0.01%), envision stablecoins becoming a widely adopted payment method for online transactions. Tether (USDT) (USDTUSD, +0.02%) and Dai (DAI) (DAIUSD, +0.01%) are other popular stablecoins in circulation.
The Role of Michael Barr
Lack of Compromise
Torres also voiced confusion over why regulators should hold veto power over bipartisan regulation and compromise. Although the Federal Reserve chose not to comment on the matter, Republican Representative Patrick McHenry of North Carolina placed some blame on the White House’s role in preventing a compromise from being reached.
Bipartisan Deal on Stablecoin Legislation Collapses Amid Lack of Compromise
A long-awaited bipartisan deal on stablecoin legislation has fallen apart due to the White House’s refusal to compromise, according to the Republican Chairman of the House Financial Services Committee. The deal was reportedly within reach, bringing both sides closer than ever before, but negotiations ground to a halt.
Notably, the White House did not offer any comments in response to requests for clarification on this matter.
Opponents of the bill, led by Rep. Maxine Waters, ranking Democrat on the financial services panel, resorted to procedural tactics in an attempt to impede its progression. They even staged a walkout during a hearing in an effort to prevent the establishment of the required quorum.
Rep. Waters criticized the proposed bill for potentially instigating a regulatory “race to the bottom.” She voiced concerns about the bill permitting different states to issue stablecoin licenses and noted the absence of a ban on commercial entities being able to issue stablecoins.
According to Rep. Waters, this framework could potentially allow giants like Amazon, Walmart, or Facebook to establish their own stablecoins or become associated with stablecoin issuers.
For more details on this topic, you can refer to: Bipartisan fears of an Elon Musk stablecoin cloud crypto legislative debate
Without broad, bipartisan support, it is highly improbable that the measure will garner any backing in the Senate. Owen Tedford, policy analyst at Beacon Policy Advisors, explained that the Senate has lagged behind in discussions revolving around crypto market structure and stablecoins. Their focus has been primarily on establishing regulations to minimize potential illicit activities involving digital assets.
In a note to clients, Tedford stated, “New rules for crypto are being considered in Congress, but it seems that the House and Senate are heading in different directions.”
Representative Torres raised concerns about the dynamics surrounding the stablecoin debate, asserting that they reflect his party’s submissive approach to financial regulators. He emphasized the need to restore the centrality of Congress in policymaking, stating, “There is a culture of excessive deference to regulators among my Democratic colleagues. We should prioritize Congress’s role in lawmaking in America.”
These recent developments highlight the challenges and divisions around stablecoin legislation, posing potential obstacles to the establishment of a comprehensive regulatory framework.