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Stablecoins on the Limelight as New Crypto Regulations Near Introduction

Crypto regulation was back in the headlines this week, with regulators within the U.S. and worldwide looking at stablecoins and debating potential policies to govern this type of cryptocurrency.

The regulations which will come to light soon could influence the accountability issuers must provide and the rights of their customers.

Potential regulations could reduce the threat that stablecoins pose a systemic risk to the financial system – or they could make the situation worse.

Fed not a Fan of Cryptos

Jerome Powell, the Federal Reserve chair, was on Capitol Hill recently giving testimony to Congress, and it is quite clear that he doesn’t fancy digital coins, most especially stablecoins.

The Fed chief said the major motivation for the U.S. to establish its own central bank digital currency would be to terminate the use case for crypto coins in America. He noted this during a two-day congressional hearing.

Powell said you don’t need stablecoins nor cryptocurrencies if you had a digital U.S. currency noting this as one of the stronger arguments in its favor.

Stablecoin Threatens Stability

For years, central bankers and U.S. lawmakers have lamented the rising stablecoins, a particular subset of cryptocurrencies designed to be pegged to a real-world asset, such as a fiat currency like the U.S. dollar or a valuable metal like gold. 

These digital tokens are increasingly being used in domestic and international transactions and threaten central new banks because they cannot regulate this space.

The President’s Working Group for Financial Markets met to discuss stablecoins a few days ago, marking this group of regulators’ first publicly announced meeting since Joe Biden took office.

Appropriate Framework for Stablecoins

Janet Yellen, the U.S. Treasury Secretary, informed regulators the government must establish and get in place a framework for digital currency stablecoins.

According to a statement from the Treasury Department, officials in the U.S. are confident to introduce recommendations for seal regulatory holes surrounding stablecoins.

The conference Yellen’s had with the President’s Working Group (PWG) on financial markets assembles regulatory advisors in the financial sector to discuss key subjects. The meeting dwelled on the importance of eCurrency rules for stablecoins, fixed in valuation to traditional money such as the U.S. dollar. 

It is unclear whether the Fed will regulate private stablecoins, a central bank-issued digital currency, or both. So even as the rest of the world awaits answers, the decisions need to be made fast.

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Tether, the most common dollar coin, is owned by Hong Kong-based iFinex Inc. Each country could decide to have its crypto or fintech firm mirror its official unit of account. Trying to regulate entities once they’re already massive to fail would not make sense.

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