Dec 23, 2020 - Economy

White House proposes stablecoin rules

Illustration of a crumpled dollar bill with binary code over it

Illustration: Sarah Grillo/Axios

The White House on Wednesday released its initial assessment of regulatory considerations for stablecoins, a form of cryptocurrencies designed to have less pricing volatility than do more traditional cryptocurrencies like Bitcoin.

Why it matters: The document covers all U.S. stablecoin arrangements, including Facebook's Libra project, which is slated to launch next month.

  • Stablecoins' lack of pricing volatility is achieved by being pegged to other assets, such as fiat currencies, and means that they are well-positioned to be used for consumer retail, a bet that Facebook is making.

Inside the report: The President's Working Group on Financial Markets, which conducted the assessment, includes the top officials at the U.S. Treasury Department, Federal Reserve, Securities & Exchange Commission and Commodity Futures Trading Commission.

  • It primarily seems to be warning that there will be broad-based regulatory oversight of stablecoins, although it does include some specific guidance like maintaining a 1:1 reserve ratio and "adequate financial resources to absorb losses and meet liquidity needs."
  • It also wants there to be a swift and orderly claims process for stablecoin holders against the issuer, including 1:1 redemption in the underlying fiat currency (net of fees).
  • There is no explicit mention of requiring bank charters, which has been proposed by some in Congress, although it opens the door by suggesting some stablecoins may need "to rely on U.S.-regulated entities as intermediaries."

The bottom line: This is just a first step toward formal regulation, but it tells stablecoin issuers that regulation is coming.

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