Greater than the threat of Bitcoin? U.S. Treasury Secretary Yellen leads cross-agency discussions on regulating stablecoins

The impact of stablecoins on the U.S. economy has forced the United States to address the issue. The Treasury Department announced on Friday that the President's Working Group on Financial Markets will hold a regulatory meeting on stablecoins at the meeting on July 19. The meeting will be led by Treasury Secretary Yellen, and will be attended by Federal Reserve Chairman Powell, Securities and Exchange Commission Chairman Gary Gensler, and Acting Chairman of the Commodity Futures Trading Commission Rostin Behnam.

The President's Working Group on Financial Markets is a cross-agency mechanism responsible for overseeing the financial markets in the United States. Treasury Secretary Janet Yellen will meet with several key regulatory agencies to discuss the regulation and risks of stablecoins.

In a press release announcing the meeting, Yellen stated that the meeting can help protect users, markets, and the broader financial system from the risks posed by stablecoins, while allowing the government to "assess potential benefits."

Yellen also emphasized the rapid growth of digital assets and the importance of regulatory oversight and recommendations for the government.

Stablecoins are a type of cryptocurrency pegged to another currency, usually a fiat currency, such as the US dollar. The value of stablecoins is intended to remain stable against the pegged currency, although in reality, stablecoins still follow fluctuations in the crypto market. However, stablecoins are relatively less volatile compared to other cryptocurrencies.

Tether (USDT), currently the third-largest cryptocurrency by market capitalization, is a stablecoin pegged to the US dollar. It is also a primary trading base currency offered by many cryptocurrency exchanges, allowing users to circumvent taxes and regulations associated with trading against the US dollar.

Over the years, the use of stablecoins by the public has far exceeded the government's expectations. For the general market, using stablecoins is not only convenient with low exchange rate differentials, but also reduces many taxes and fees, leading to an increasing number of people using stablecoins for transactions.

During a hearing held by the US House Financial Services Committee on Wednesday, Powell cited Tether as an example, acknowledging the advantages of stablecoins in the payment system. While stablecoins possess attributes similar to central bank digital currencies (CBDCs), money market funds, bank deposits, or narrow banks, they are not regulated, which poses the main risk of stablecoins and thus should be subject to greater oversight:

"We think stablecoins may be an important part of the payment system going forward, but not cryptocurrencies, but stablecoins may be, and so we need an appropriate regulatory framework and we don't have one."

In December last year, the President's Working Group on Financial Markets released a regulatory report on stablecoins claiming that stablecoins may pose risks in terms of user rights, know-your-customer (KYC) and anti-money laundering (AML) issues, market integrity, and currency stability.

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