In a lengthy report, a task force led by the U.S. Department of the Treasury expressed concern about stablecoins. He believes that these stable cryptocurrencies, which are growing rapidly, must be regulated as soon as possible.
This is a long-awaited report, which risks triggering a reaction in the United States. A Treasury Department-led task force, including the Federal Reserve and other U.S. regulators, has raised concerns over stablecoins. The organization calls for stricter regulation of “stable” cryptocurrency issuers, even asking that they be controlled like banks. This includes oversight of the United States Federal Reserve (the FED) and the requirement to have sufficient reserves. Constituted by the Biden administration, this working group puts forward several elements to justify its position.
Before we get into it, it’s worth remembering that stablecoins are digital assets that – as the name suggests – are designed to hold a stable value. They are thus attempting to respond to one of the issues and main criticisms of the sector, namely the high volatility of the prices of cryptocurrencies such as bitcoin or ether. The value of “stable” cryptocurrencies is backed by another price – presented as a safe haven – like a fiat currency (euro, US dollar) or a metal such as gold. The price of a stablecoin may therefore vary, but in a much weaker way than that of a so-called non-backed cryptocurrency.
Criticized, “stable” cryptocurrencies are increasingly popular
Currently, most stablecoins are backed by the US dollar, and the popularity of these “stablecoins” worries the United States. Indeed, they are used more and more, because they facilitate the exchange of cryptocurrencies and can therefore act as a “safe haven”. Stablecoins can be an alternative to converting cryptocurrencies into dollars or euros, avoiding the need for their users to declare capital gains and losses to the tax authorities.
These digital assets “Present a variety of risks” for users, according to the United States Department of the Treasury. The task force is particularly concerned about a possible loss of user confidence in the ability of stablecoin issuers to meet their expectations. The latter could then be tempted to mass sell their stablecoins, with the risk of causing harm to people and the financial system, the report said. In addition to the panic effect and the fear of seeing the emergence of a domino effect, American regulators mention risks in terms of money laundering or terrorist financing. These criticisms – which come up regularly when it comes to discussing cryptoassets – echo those issued by two officials of the European Central Bank (ECB) concerning bitcoin.
The Tether case to support the report
This clear finding by US regulators comes in a tense context for stablecoins. One of the most popular “stable” cryptocurrencies, Tether has been the subject of controversy for a few years and was recently fined $ 41 million by US authorities. The latter accuse Tether of having lied about its financial reserves, as explained by the independent US federal agency responsible for the regulation of stock exchanges (the CFTC). In a statement, she clarifies that Tether held sufficient sufficient monetary reserves “For only 27.6%” time, over a 26-month period, between 2016 and 2018. “This case highlights expectations for honesty and transparency in the rapidly growing and developing digital asset market”, believes Rostin Behnam, interim president of the CFTC.
Tether was created as a dollar-backed stablecoin. © Robert Paternoster / Shutterstock
Due to the rapid growth of “stable” cryptocurrencies, the report finds that a stock is proving to be “Urgent”. “If we do not act, we risk seeing the growth of stablecoins without adequate protection for users, the financial system and the economy at large”, specifies the report. Concerned, the US regulators do not want to sound the end of these cryptocurrencies. “If well designed and properly regulated, stablecoins could promote faster, more efficient and more inclusive payment options”.
The United States is not alone in wanting to more firmly regulate stable cryptocurrencies. As of the start of the 2020 school year, several European countries – including France – called on the European Commission to establish rules for asset-backed cryptocurrencies. At the end of September, Europe unveiled a set of measures on digital finance including new legislation on crypto-assets. In particular, it is a question of subjecting issuers of crypto-assets backed by assets such as stablecoins “More stringent requirements (for example in terms of own funds, investor rights and supervision)”.
The stablecoins market weighs 130 billion dollars, or more than 110 billion euros. In its report, the working group also suggests the idea of limiting the initiatives of the tech giants. According to Bloomberg, this action is aimed at limiting the efforts made by Meta. After Libra, the company formerly known as Facebook Inc. has plans to launch a stable cryptocurrency called Diem and provide a digital wallet to its users.