November 2, 2021

Senators divided over US Treasury report

Senators divided over US Treasury report

Three US senators - Sherrod Brown, Pat Toomey and Cynthia Lummis - have issued reactions to a Treasury report on the risks associated with stablocoins. Their statements could set the stage for an upcoming debate.

The document, previously released, refers to the threat to investors and market integrity posed by "stablecoins" as well as severe legal restrictions.

Republicans Toomey and Lummis sit on the Senate Banking Committee, chaired by Brown (Democrat). According to the latter, the PWG report "highlights the risks that the rapid growth of stablcoins poses to families and the economy".

We must work to ensure that any new financial technology is subject to all laws and regulations that protect investors, consumers and markets, and that it competes on an equal footing with traditional financial institutions, the statement said.

Brown expressed a willingness to work with Treasury Secretary Janet Yellen and regulators "to promote responsible innovation in the financial system".

Lummis supported some of the PWG's recommendations, but called the requirement to equate stablocoin issuers with depository institutions with mandatory deposit insurance flawed.

There are other, safer ways to achieve the same objectives. For example, we could require 100% of the reserves of stablcoins to be held on an off-balance sheet basis, or held at the Federal Reserve Bank [...]. I am concerned that the recommendation would only benefit the big banks and limit innovation, Lummis stressed.

The senator also pointed out that, according to the report, "Congress will and should have the last word".

Toomey also pointed this out:

As the Biden administration acknowledges in its report, Congress has an obligation to clarify whether and to what extent federal agencies have jurisdiction over Stablecoin.

He expressed hope that the administration "will resist the urge to expand existing legislation" while Congress works on a "thoughtful" regulatory framework.

Gary Gensler, head of the US Securities and Exchange Commission (SEC), also left his response. He stressed that over the past 20 months, the stabelcoin market has "increased 20-fold" and is valued at nearly $130bn.

The authors of the report allowed that stablocoins "can be securities, commodities and/or derivatives", the SEC chairman noted.

Thus, the use of stablcoins presents a number of public policy challenges in the context of investor protection, Gensler said.

He said the SEC and the CFTC will make full use of the federal Securities Act and the Commodity Exchange Act with respect to "stablecoins" where possible.

Michael Xu, acting head of the Office of the Comptroller of the Currency at the US Treasury, supported the report's recommendations.

The rapid growth of Stablecoins as an innovative and unregulated means of engaging in digital asset speculation and lending is equally frightening and alarming. [...] To grow and develop steadily, reasonable control over stablocoins by the federal government is necessary, the official stressed.

Recall that in July the Fed said at a meeting that the lack of transparency of stablocoins could threaten financial stability.

At the same time, Yellen called for an early regulatory framework for "stablecoins". In September, the first excerpts of the final document appeared.

That same month, Gensler pointed to the risks of widespread use of stablcoins. He also called them "cryptocurrency casino poker chips".

Jack Evans

About the author

I became a crypto asset owner in 2014, when the industry was in its infancy. Before that, I was working in the classic US and European stock markets. Since then, I have gained extensive experience in both cryptocurrency investing and day trading. I am happy to share with readers my experience with crypto exchanges, DeFi and NFT instruments. 

View All Posts By Jack Evans