A new report released by the President’s Working Group on Financial Markets (PWG), Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) examines the risks associated with stablecoins and the solutions to those risks.
Stablecoins are a type of digital asset designed to maintain a stable value relative to the U.S. dollar. They are primarily used to facilitate trading of other digital assets, but the report indicates that it could be more widely used in the future as a means of payment by households and businesses.
“Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system,” Secretary of the Treasury Janet Yellen said. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter. Treasury and the agencies involved in this report look forward to working with Members of Congress from both parties on this issue. While Congress considers action, regulators will continue to operate within their mandates to address the risks of these assets.”
However, the report points out that increased use of stablecoins as a means of payments raises several concerns, including the potential for destabilizing runs, disruptions in the payment system, and concentration of economic power. The report recommends that Congress enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis.
Specifically, legislation should require stablecoin issuers to be insured depository institutions. Also, it should require custodial wallet providers to be subject to appropriate federal oversight. Further, Congress should provide the federal supervisor of a stablecoin issuer with the authority to require any entity that performs activities critical to the functioning of the stablecoin arrangement to meet appropriate risk-management standards. In addition, legislation should require stablecoin issuers to comply with activities restrictions that limit affiliation with commercial entities.
While Congressional action is urgently needed to address the risks inherent in payment stablecoins, in the meantime, the agencies recommend that the Financial Stability Oversight Council consider steps it can take to address the risks outlined in this report. Also, to the extent that activity related to digital assets falls under the jurisdiction of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), they may also address certain of these concerns.