Circle CEO Discusses Digital Dollar; Key provisions that stablecoin legislation should include; Unresolved issues
The U.S. House Financial Services Committee held a hearing on the 13th titled "The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem". Jeremy Allaire, CEO of Circle, was one of the attendees and shared his testimony from the hearing today.
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Circle CEO: The Status of the US Dollar is Facing a Crucial Turning Point Worldwide
In his testimony, Jeremy Allaire straightforwardly stated that the demand for a secure and reliable US dollar online is continuously increasing, and mentioned that stablecoins and blockchain networks can expand to support billions of users and trillions of dollars in payment activities under the correct regulatory framework. However, the status of the US dollar is facing a crucial turning point worldwide.
Rapidly changing geopolitical and economic factors are having a significant impact on the US dollar-based global financial system. Over the past 8 years, the proportion of the US dollar in global foreign exchange reserves has decreased by an average of about 1% annually. Furthermore, currency competition from other countries is also escalating. Using China as an example, Jeremy Allaire noted that China has already developed its own digital currency, the digital yuan, designed to weaken the dominance of the US dollar.
To solidify the US dollar's dominant position internationally, Jeremy Allaire urged authorities to adopt appropriate policies to ensure that the US dollar is the most competitive currency online and can be universally used as the safest and most reliable digital dollar.
Key Provisions that Should be Included in the Stablecoin Legislation
Jeremy Allaire then discussed the importance of stablecoin legislation, stating that establishing stablecoin legislation should be a top priority to create a robust digital asset regulatory framework. The legislation should include the following key provisions:
- Robust banking-level supervision and risk management for stablecoin issuers
- Strict requirements for the reserve assets of the digital dollar
- Consumer protection for redemption and custody requirements
- High transparency, audits, and regular reporting
- Plans to prohibit the circulation of counterfeit digital dollars issued by operators operating overseas and not in accordance with US rules
- Both state and federal governments play a role in supervising issuers and establishing a dual banking system
Jeremy Allaire also added that stablecoin issuers should not be limited to banks, and non-bank institutions should also be allowed to issue stablecoins. Additionally, he believed that the supervisors mentioned above are more suitable for managing this innovative payment system compared to market regulators.
4 Outstanding Issues to be Resolved in the Stablecoin Legislation
In addition to the recommendations for stablecoin legislation, Jeremy Allaire raised 4 outstanding issues:
- The Role of State and Federal Banking Regulatory Agencies: Jeremy Allaire believed that the payment innovation of stablecoins needs to be effectively regulated on a state-by-state basis.
- The Need for Secure and Reliable Stablecoin Issuers: Jeremy Allaire argued that the reserve requirements for stablecoins need to be more stringent than banks, as using only a portion of deposits as reserves while using the rest for other businesses could jeopardize the security of funds used for payments. He also called for stablecoin issuers to have access to Federal Reserve accounts.
- How Financial Institutions Should Hold Payment Stablecoins: Jeremy Allaire suggested that any company acting as a financial intermediary for payment stablecoins should be required to store these stablecoins in state or federally chartered qualified custodian institutions, including trust banks, to ensure the security of the digital dollar.
- Defining What Constitutes a Secure Digital Dollar: Due to the proliferation of stablecoins claiming to be the US dollar online without transparency from operators, it is uncertain whether they have adequate risk management and financial robustness. To prevent these stablecoins from undermining US national interests and security, Jeremy Allaire proposed criminal penalties for stablecoin companies issuing counterfeit digital dollars.
Finally, Jeremy Allaire likened the development of the digital dollar to past internet technology innovations, where proactive policies by the US enabled them to benefit in this sector. However, the current situation is different, as the technological capabilities gap between countries is narrowing, especially with China significantly closing the distance.
"The dollar is at a crossroads. Currency competition has evolved into a technological competition online. I urge members of Congress to consider this moment, think about the value system we want to solidify in law, and safely and consciously unleash the creativity of US-led technological innovation." Jeremy Allaire stated.