A few days prior to the April 19 hearing, a new draft bill establishing a framework for stablecoins in the US was presented in the House of Representatives document repository. According to the proposed legislation, the Federal Reserve will be in charge of non-bank stablecoin issuers like the crypto firms Circle and Tether, who respectively issue Tether and USD Coin.
A subset of cryptocurrencies known as stablecoins aim to provide investors with price stability by being backed by certain assets or employing algorithms to change their supply in response to demand. The launch of BitUSD in 2014 marked the beginning of stablecoins.
The document states that while non-bank institutions would be under the Federal Reserve’s jurisdiction, insured depository institutions intending to issue stablecoins would be supervised by the appropriate federal banking regulator. Failure to register could lead to up to five years in prison and a penalty of $1 million. Issuers outside the US must seek registration to operate in the country.
The legislation requires stablecoin issuers to maintain reserves backed by specific assets such as U.S. dollars or Federal Reserve notes, Treasury bills with a maturity of 90 days or less, repurchase agreements with a maturity of seven days or less backed by Treasury bills with a maturity of 90 days or less, and central bank reserve deposits.
Issuers must also demonstrate their technical proficiency, an established governance, and the advantages of using stablecoins to promote financial inclusion and innovation.
“There is clearly the need for deep, bi-partisan support for laws that ensure that digital dollars on the internet are safely issued, backed and operated”, stated Circle CEO Jeremy Allaire on a Twitter thread.
The proposed legislation includes a two-year ban on generating, issuing, or originating stablecoins that are not backed by physical assets. Furthermore, it also proposed a study on “endogenously collateralized stablecoins” that would be conducted by the U.S. Department of the Treasury.
An endogenous stablecoin, according to the definition in the document, “relies solely on the value of another digital asset created or maintained by the same originator to maintain the fixed price.”
The law also gives the US government the power to set requirements for stablecoin interoperability. Additionally, the draft also states that the Federal Reserve study will get support from Congress and the White House on the creation of a digital dollar.