CEO Circle to urge US Congress to pass stablecoin law

The stablecoins law would mark the first step in creating conditions for a safe market in digital assets, and would also support the dollar’s competitiveness. This is stated in стенограмме выступления by Circle CEO Jeremy Allaire.

The executive will testify before members of the US House Financial Services Committee on the topic ‘The Future of Digital Assets: Providing Clarity for Their Ecosystem’.

According to Allaire, Washington must lead the development of global rules that will determine how the dollar is used around the world. This is timely given the dollar’s shrinking share of global reserves over the past eight years.

Allaire noted growing demand for ‘safe and reliable dollars’ online. He said it could scale to support billions of users and tens of trillions of dollars in payments activity with the right regulatory framework, Allaire added.

Threats to the US dollar

In the coming years the yuan could undermine the dollar’s dominance due to a Beijing-controlled CBDC, Allaire admitted. He said that failure by the United States to take appropriate measures could have devastating consequences for the country, he added.

“The stakes are too high to ignore”, — emphasized the Circle CEO.

According to Allaire, digital dollars should circulate freely and widely for all legitimate purposes. To do so they must be backed by high-quality, liquid assets and free from embedded investment and credit risks.

In this respect, passage of the stablecoin law should be the first step in establishing a regulatory framework that creates conditions for a dynamic and secure market for ‘stablecoins’.

The move to the president’s pre-signature stage of the bill should be a priority. Allaire pointed to authorities in the EU, Japan and Hong Kong approving similar legislation that also governs the use of dollar-denominated tokens. The United States must lead the development of global rules, the Circle CEO said.

The Stablecoin Law

Allaire enumerated the advantages of the bill under consideration by Congress:

• robust banking supervision and risk management for issuers;
• stringent asset requirements for assets that may back digital dollars;
• requirements for redemption and safekeeping of ‘stablecoins’ to protect consumers;
• transparency, auditing and reporting requirements;
• measures to ban the circulation of ‘fake’ digital dollars by issuers operating offshore and ‘not playing by US rules’;
• the role of both state and federal regulators in supervising issuers.

Issues for dollar stablecoins

Circle urged lawmakers to focus on four remaining questions:

First — the role of banking regulators.

The executive noted the United States’ status as a laboratory for fintech innovation over the past 25 years, made possible by a broad public oversight regime. He argued for preserving the status quo with regard to regulated stablecoins.

“There is a need for national standards that set a high bar for issuers with federal or state licenses. […]. The solution could provide the foundation for innovation in dollar-denominated digital currency worldwide,” Allaire proposed.

The second question concerns reserves.

Circle argues that stablecoin issuers should be as safe as possible. In fact, reserve requirements should deliver greater safety than banks.

The bill recognises this by requiring that stablecoins be backed by dollar-denominated, high-quality liquid assets on a 1:1 basis. But this would deprive issuers of payment stablecoins of the ability to hold even a small portion of their cash assets in ФРС, the expert noted.

As a result, issuers would have no choice but to place all their cash in banks and other deposit-taking institutions, which could fail and undermine confidence in digital dollars.

Additionally, the requirement that payment stablecoin issuers gain access to Fedwire through intermediary banks could introduce unnecessary client-concentration risk within an uninsured deposit base, Allaire noted.

“A suitable solution is to grant issuers individual and limited rights to access basic Federal Reserve account services,” advised the Circle CEO.

The third major question is how financial institutions should custody payment stablecoins.

According to Allaire, stronger consumer protection is needed.

“It would be prudent to require any intermediary company for payment stablecoins to hold them either with a government-operated or federally authorized qualified custodian, including trust banks,” he proposed.

The fourth question is how to counter illegal digital dollars.

Circle noted an influx of dollar stablecoins, whose operators are opaque, risk management and financial integrity are unclear. In some cases, such assets are designed in ways that do not run afoul of U.S. national interests and law, the executive noted.

“The bill should impose criminal penalties on stablecoin firms that knowingly issue ‘fake’ digital dollars in the United States, to U.S. persons or worldwide. … Civil sanctions alone are far from enough to deter those with enormous economic incentives to violate U.S. law and undermine confidence in the dollar domestically and abroad,” Allaire recommended.

In conclusion, Allaire drew a parallel with the popularisation of the Internet in the 1990s, which cemented U.S. technological leadership. Unlike that period, the United States no longer has the luxury of time.

“The dollar is at a crossroads. Currency competition has now become technological competition on the Internet. I urge all members of Congress to consider this moment,” warned Allaire.

Preliminary hearings on the third version of the stablecoins bill in Congress are scheduled for June 13.

In April, the first version was unveiled. The original draft gave wide attention to issuer activities and oversight.

Later, lawmakers proposed an updated version of the document, which would strip the U.S. Securities and Exchange Commission of jurisdiction over this class of assets.

During congressional hearings, policymakers criticised the bill for outdated data in its preparation and urged updating information for the next session.

Earlier, Allaire called enforcement actions the primary factor weighing on the capitalization of USDC. The executive did not rule out the United States losing its leading position in the sector to the EU, Hong Kong and the UAE.