Janet Yellen believes stablecoins should be regulated as soon as possible. The US Secretary of State spoke about this on Monday at a meeting devoted to the financial markets at which the heads of the regulatory authorities were also present. In the course of the debate, they discussed the need for rules to govern the technological changes that are affecting the monetary system.
According to Reuters, the Treasury Department also announced plans in a press release to issue recommendations in the coming months to close the regulatory loopholes around stablecoins.
Monday’s meeting discussed the rapid growth of the sector, its uses and the risks to both users and the financial system.
This is not the first time that the idea of stricter regulation of stablecoins has come up in the United States. In December, a bill was proposed that would require companies issuing stablecoins to have a banking licence. In reality, this initiative was not designed to counter existing and dominant stablecoins, such as Tether, but future ones such as Diem, formerly Libra, Facebook’s cryptocurrency.
The reason why Janet Yellen, and others, want to regulate stablecoins
The regulator’s attention to stablecoins is high and it is bound to be so. We are talking about an industry with $114 billion in total capitalization, with Tether alone worth more than $60 billion.
And it is no coincidence that among the top 10 cryptocurrencies by capitalization, three are stablecoins:
- Tether (USDT, 61 billion, 3rd place);
- USD Coin (USDC, 26 billion, 6th place)
- Binance USD (BUSD, 11 billion, 9th place).
Stablecoins, unlike classic cryptocurrencies, have a stable value and are anchored to a reference currency, usually the dollar (although there are others linked to other currencies such as the euro and sterling).
According to some, among them Eric Rosengren of the FED, the real problem is to ensure their stability because to be pegged exactly to the dollar they must have as many reserves as their market capitalization.
Then there is the problem of monetary sovereignty, which has particularly affected Libra, now Diem. In fact, letting stablecoins proliferate and allowing them to be exchanged implies doing away with the real dollar in favour of a digital version of it, but issued by a private individual. This is something that national and international authorities cannot accept.
That is why in the United States as well as in China, there is a need for regulation and also a need to quickly issue a CBDC (Central Bank Digital Currency), directly controlled by the central bank.
China is working on this with ongoing tests of the digital yuan. Instead, the United States seems to be lagging behind and is more likely to act sooner on stablecoin regulations.