The U.S. House of Representatives releases draft stablecoin legislation, proposing a temporary ban on the use of stablecoins backed by cryptocurrencies and urging research on CBDCs.

The U.S. House Financial Services Committee released a draft of the Stablecoin Bill last Saturday, proposing measures that include suspending stablecoins backed by other cryptocurrencies and requirements to research Central Bank Digital Currencies (CBDCs). A hearing related to this will take place on Wednesday, with witnesses including Dante Disparte, Global Strategy Chief of stablecoin issuer Circle; Jake Chervinsky from the Blockchain Association; Austin Campbell, a professor at Columbia University; and Adrienne Harris, Head of the New York Department of Financial Services.

Origins of the Stablecoin Legislation

As early as November 2021, the President's Working Group on Financial Markets (PWG) released a report on stablecoins. The report included a proposed federal regulatory framework to address existing and potential risks of stablecoins and recommended immediate legislative action by Congress.

Starting in the spring of 2022, staff members from both Democratic and Republican committees began working on legislation to establish a federal framework for issuing stablecoins. The framework aims to ensure that issuers have a legitimate path to issue stablecoins, with federal financial regulatory agencies empowered to address related issues, including risks to stablecoin users, stablecoin runs, and systemic risks. Staff from the Treasury Department, the Federal Reserve, and the Office of the Comptroller of the Currency (OCC) also provided technical assistance throughout the process. In September 2022, a draft was shared with the committee and received significant feedback.

Requirements for Stablecoin Issuers

The newly unveiled draft explicitly states that any issuer wishing to conduct stablecoin business in the United States, regardless of where the company is based, must register. They are also required to disclose information about their business operations, risk management plans, and maintain sufficient funds to support the stablecoins they issue. Additionally, the legislation sets forth enforcement measures and penalties of up to one million dollars and/or imprisonment of up to five years to ensure compliance with relevant regulations by stablecoin issuers.

Feasibility Study of a Digital Dollar

The draft also calls for the Federal Reserve to conduct a study on the digital dollar and submit a report to Congress on central bank digital currencies (CBDCs). The report should include information on the design, implementation, and risk management of central bank digital currencies.

Furthermore, the draft mentions other provisions such as establishing interoperability standards to ensure the interchangeability of different stablecoins. Additionally, the legislation prohibits the use of stablecoins supported by other cryptocurrencies like algorithmic stablecoins.

Hearing Scheduled for Wednesday with Circle and NYDFS Participation

The House Financial Services Subcommittee will hold a hearing on stablecoins this Wednesday, with witnesses including Dante Disparte, Global Strategy Officer of stablecoin issuer Circle, Jake Chervinsky from the Blockchain Association, Professor Austin Campbell from Columbia University, and Adrienne Harris, Head of the New York Department of Financial Services.

This draft may not be the final version of the stablecoin legislation, as stakeholders will continue to debate and negotiate in Washington over the coming weeks or even months. However, if this legislation is passed, it will have a significant impact on stablecoin issuers and could bring changes to the cryptocurrency market.