Written by: Amanda Angulo
Due to a most recent uproar in popularity with digital currency, cryptocurrency has now influenced the Treasury Department to over watch crypto, since it began to be used as a payment method. This also results in a need to head off potential risks to consumers and financial system.
The Treasury Department and other regulators want to ensure that cryptocurrency is safe and reliable, even during financial panics. This is because the stablecoins, designed as payment tokens with their value pegged to the U.S. dollar, have begun to draw scrutiny due to the increasing amount of quick transactions and trillions of dollars spent. This can ultimately change the way Americans pay for things.
“There are some benefits to consumers that are worth exploring; namely, facilitation of faster payments,” FDIC Chair Jelena McWilliams said in an interview. “But there are also risks if stablecoins are adopted more broadly.”
Stablecoins could potentially gain credibility as a mainstream payment method due to their value not fluctuating a lot. Therefore, regulators want to ensure that companies issuing stablecoins have enough assets to back up the tokens, just in case users decide to cash them in for cash and not leave the companies short.
As of now, stablecoins are mostly used as a medium of exchange on cryptocurrency networks instead of traditional credit and debit cards. However, this could change under the vision of the Diem Association and other organizations as such. Due to their own affiliation with Facebook, they could take advantage of the social media platform for its 3 billion users.
The Treasury, Federal Reserve, Securities and Exchange Commission, Federal Deposit Insurance Corporation (FDIC), and other regulators will release a report in the next few weeks to determine the next steps on regulating crypto-assets.
“What you can find yourself worrying about from a financial stability perspective are not the things that are most risky, but the things that are typically safe, and what can happen to them in a crisis when the thing you thought was safe turned out not to be so,” stated a Treasury official.
Additionally, due to the USD Coin, the second-largest stablecoin, being applied to be a national bank, they claim that it might not need a deposit insurance due to the digital currency being in the process of becoming backed by cash and U.S. government debt. This places pressure on the Fed to determine whether they are allowed to traditional payment rails. The Fed could also take more regulatory control over the stablecoins.
Jerome Powell, the Fed Chair, has told lawmakers that “one of the strongest arguments” for central bank digital currency is the idea that “you wouldn’t need stablecoins.”
Photo from: Chip Somodevilla/Getty Images
