White House Financial Markets Working Group releases stablecoin report, recommending regulatory agencies to impose additional regulatory restrictions on "multi-currency stablecoins".

The White House Financial Markets Working Group released a statement yesterday regarding the regulation of stablecoins, including the possibility of additional regulatory restrictions on "multi-currency stablecoins."

Full Support and Strict Regulation

Thestatement comes from the "President's Working Group on Financial Markets," an organization established by former U.S. President Reagan in Executive Order 12631. Members include Treasury Secretary Steven Mnuchin, Federal Reserve Chairman Jerome Powell, SEC Chairman Jay Clayton, and CFTC Chairman Heath Tarbert. The primary focus of the group lies within the financial and fiscal realms, providing timely advice to the U.S. President and federal regulators when necessary.

The statement highlights stablecoins as a revolutionary breakthrough in the global payment system, with the potential to enhance efficiency, increase competitiveness, reduce costs, and promote broader financial inclusion. The U.S. strongly encourages the development of this new technology, provided that operators can effectively control risks and maintain the stability of the U.S. monetary system.

The importance of stablecoins in "anti-money laundering and combating the financing of terrorism" is emphasized in the statement. This includes the strict implementation of KYC identity verification among all parties (including non-custodial wallets), which interestingly aligns with the regulatory proposal that Coinbase's CEO vehemently opposed. The proposal, released by the Federal Reserve and the Financial Crimes Enforcement Network (FinCEN) on October 23, states that cryptocurrencies should adhere to the Travel Rule, and Virtual Asset Service Providers (VASPs) must capture and share information on senders and recipients.

Deputy Treasury Secretary Justin Muzinich commented on the statement in a press release from the U.S. Treasury Department:

"The statement reflects the commitment to promoting innovation and achieving significant goals related to national security and financial stability. Regulatory agencies will continue to closely monitor stablecoins and look forward to discussions on these issues in the future."

Further Restrictions Needed for Multi-Currency Stablecoins

Furthermore, the President's Working Group on Financial Markets also stated that for those "multi-currency stablecoins" that are not pegged 1:1 or whose value is derived from a combination of multiple legal tender currencies, regulatory authorities need to further establish restrictions to prevent any impact on the confidence and stability of domestic legal tender currencies. The emphasis on this point is likely inspired by the first-generation stablecoin project Diem (Libra) from Facebook.

Diem (Libra) initially planned to be backed by a basket of currencies including the U.S. Dollar, Euro, Japanese Yen, British Pound, and Singapore Dollar, but regulatory bodies strongly opposed this "self-made currency" behavior out of fear that it would affect the stability of the global monetary system. Ultimately, Diem (Libra) complied with regulatory authorities and changed its stablecoin to a 1:1 pegged system.

However, the statement does not mention the currently popular stablecoins in the decentralized finance (DeFi) space that do not have fiat backing, such as algorithmic stablecoins (like Empty Set Dollar) and stablecoins backed by cryptocurrencies (like Dai), so it remains unclear how the group's recommendations will impact these stablecoins.