The proposed Lummis-Gillibrand stablecoin bill in the United States, if passed, could help maintain the dominance of the US dollar in the stablecoin market and bring more competition to Europe’s MiCA regulatory regime. However, the legislation still faces challenges such as maintaining a bipartisan and bicameral interest, overcoming potential White House opposition, and being attached to a broader legislative package. The bill could also lead to mergers between banks and stablecoin issuers if enacted. Despite these hurdles, some believe that the momentum is building for stablecoin legislation in 2024.
Stablecoins have recently caught the attention of lawmakers in the United States for many reasons.
Consumer-friendly digital currencies outperform traditional cryptocurrencies, such as Bitcoin (BTC) and Ether (ETH), in terms of stability for everyday purchases due to their more predictable value fluctuations.
As a financial analyst, I’ve noticed some concerns among lawmakers regarding the use of stablecoins by illicit actors such as drug dealers and terrorist groups for their daily transactions.
Should stablecoins remain unregulated, there’s a risk that their prevalence could ultimately challenge the US dollar’s hegemony in the global economy.
In simpler terms, Dante Disparate of Circle stated to CNBC in January that all forms of illicit activities harmful to the US dollar are detrimental to the US economy, damaging for the sector, banking and payments, and ultimately hurtful to individuals.
In a recent academic article, Timothy Massad, who previously led the Commodity Futures Trading Commission and is currently a scholar at Harvard University, raised an intriguing question.
“It is the global dominance of the dollar, coupled with the role of U.S. banks in facilitating dollar payments, that gives the U.S. its tremendous financial leverage. Could stablecoins undermine that leverage?”
Massad and others express worry that without the regulatory oversight of the Bank Secrecy Act, stablecoins and cryptocurrencies could be used by malicious actors to bypass US economic sanctions, potentially undermining American economic and political objectives.
As a researcher, I found it intriguing that Massad’s paper was published on the very same day, April 17, as U.S. Senators Cynthia Lummis and Kirsten Gillibrand introduced the Lummis-Gillibrand Payment Stablecoin Act. This bipartisan legislation aims to establish a regulatory framework for payment stablecoins.
“According to a Lummis press release, the proposed legislation aims to enhance the usage of the US dollar as the global currency while maintaining the existing two-tiered banking structure in the US.”
In the United States House of Representatives, the finishing touches are being put on the McHenry-Waters bill concerning stablecoins, as disclosed by one of its co-authors, Maxine Waters, in a conversation with Bloomberg on the 25th of April.
Stablecoin legislation will “cement” U.S. dollar
As a crypto investor, I’ve been closely following the developments in stablecoin legislation in the United States. With the recent surge in interest and adoption of these digital assets, it seems that the stars may be aligning for some significant regulatory action. However, it is essential to keep in mind that this is an election year, which could make the passage of such legislation uncertain.
Massad expressed to CryptoMoon that the Lummis-Gillibrand bill signified a significant advancement in establishing a regulatory structure for stablecoins. This legislation mandates that issuers adhere to the Bank Secrecy Act, which in turn necessitates reporting of any suspected financial misconduct.
“Massad acknowledged the progress, but stressed the importance of giving more attention to the payment infrastructure beyond just the issuers,” or “Massad approved, yet emphasized the necessity of devoting extra resources to the payment systems rather than merely focusing on issuers.”
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“Legislation that successfully regulates stablecoins will strengthen the global dominance of the US dollar and foster responsible innovation in digital assets from within the US,” said Kristin Smith, CEO of the Blockchain Association, in conversation with CryptoMoon. She commended the bipartisan efforts of Lummis and Gillibrand towards digital asset regulation.
“Action from U.S. regulators and Congress on stablecoin legislation that acknowledges the importance of stablecoins to the market and that encourages future stablecoin innovation to take place in the U.S. is paramount.”
Maintaining dollar base for stablecoins
It could also keep the stablecoin market dollar-denominated.
Europe‘s groundbreaking MiCA regulatory framework for crypto-assets, set to begin in late June, is seen by many as creating a safer, more robust environment for stablecoin issuers and users. This regime may also foster increased competition within the industry.
As a researcher examining the stability of euro and dollar stablecoins, I would express it this way: “The current circumstances seem ripe for a shift in the balance between euro and dollar stablecoins over the long term.”
Austin Campbell, founder and managing partner of Zero Knowledge Consulting, testified before the US House Financial Services Committee’s Subcommittee on Digital Assets, Financial Technology in 2023, expressing concern that the market for stablecoins was shifting from the United States to places like Singapore, Dubai, and the European Union, among other jurisdictions.
Could Lummis-Gillibrand turn things around?
As a researcher studying the latest developments in cryptocurrency legislation, I believe a promising bill would be introduced. However, I don’t think Lummis-Gillibrand has reached that stage just yet, but it shows good intentions. It requires some technical improvements to become effective. On the other hand, McHenry-Waters seems to be further along in the process.
How does Campbell feel about Lummis’ point that the suggested legislation is essential for preserving the US dollar’s leading position in the global economy?
“Yes, I do. Blockchains are growing quickly, and the dollar is the central unit of exchange. If the first point continues but the second one doesn’t, that’s a long-term problem for the dollar.”
Massad expresses concern that without regulation, stablecoins could be used to bypass U.S. sanctions.
In his research paper, the author highlighted that stablecoins served as a significant method for Hamas to bypass law enforcement and sanctions before carrying out attacks on Israel on October 7, 2023. As a result, he strongly advocates for regulating stablecoins to mitigate potential risks.
In his remarks on current regulatory developments in the U.S., Massad expressed optimism, stating, “We’re making progress.” The Treasury Department is showing increased support for stablecoin regulation, and legislative initiatives are underway in the House. Additionally, Senate Banking Committee Chair Sherrod Brown appears more receptive to stablecoin legislation than before.
Despite Massad’s reluctance, it remains uncertain if the proposed federal legislation on stablecoins will even make it through in 2024, let alone get enacted.
“Momentum building” behind stablecoin legislation
As an analyst, I’ve noticed a promising shift in the political landscape regarding stablecoins. According to George Leonardo, founder of Cap Hill Crypto, there are three noteworthy developments:
In the minimum, Leonardo conveyed to CryptoMoon that there remains a strong desire among political parties and branches of government to enact regulations on stablecoins by the year 2024.
For his part, Campbell said: “I am always skeptical of major legislation in an election year.”
During an election year, the compressed legislative schedule poses a significant hurdle, according to Leonardo, who has experience working with U.S. Senator John Cornyn. With Members devoting more energy to their campaign trails in their districts, there’s a scarcity of time left for deliberating, revising, and enacting legislation – including potential stablecoin bills – on the House and Senate floors.
During an election year, there can be certain benefits as well. As Leonardo explained, “There’s a chance that the upcoming election and the resulting change in membership could encourage Members to finalize agreements this year instead of starting over with a new group next Congress.”
“Chairman McHenry, who has spearheaded stablecoin negotiations for House Republicans, will be retiring and has made clear enacting stablecoin legislation is one of his key priorities before leaving Congress.”
If legislation for stablecoins is enacted in the year 2024, it could result in some intriguing consequences. According to Jaret Seiberg, the head of TD Cowen’s Washington Research Group, this development might prompt mergers between banks and stablecoin issuers. The rationale behind this is that stablecoin issuers would benefit from the privileges of being a bank, while banks seeking involvement in stablecoins would value the user base of an established issuer.
Hurdles remain for stablecoin bill
The legislation encounters notable challenges ahead. As stated by Seiberg, it must surmount “substantial barriers,” including securing approval from the White House and linking up with a larger legislative proposal.
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As a crypto investor following the developments in the financial sector closely, I’m confident that the ongoing negotiations between House Financial Services Chair Patrick McHenry and Rep. Maxine Waters will form the foundation of the upcoming bill.
“Lummis-Gillibrand, in our view, would be positive for stablecoin issuers as it would establish clear rules of the road. It also would be symbolically significant for crypto in general as it would be the first constructive crypto legislation from Congress.”
Stablecoins, as a financial asset class, can thrive independently of any action taken by the U.S. Congress. They have gained significant popularity as a substitute for local currencies in countries with weak economies, and their expansion may continue even without American intervention. (Massad’s original statement: “Of course, stablecoins as an asset class can flourish even if the U.S. Congress does nothing. They have ‘become popular as a means for people in countries with weak currencies to acquire a dollar substitute.’ Moreover, that growth could come even if the U.S. does not take action.”)
Massad expressed his viewpoint to CryptoMoon that it’s generally preferred for stablecoins to fall under U.S. regulatory oversight rather than operating outside of it.
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2024-04-29 16:53