US Treasury to require stablecoin issuers to ensure their tokens can be freely converted into fiat

Holders of stablecoins should have the ability to freely convert their tokens into the assets backing them. This requirement is included in recommendations to stablecoin issuers being developed by the U.S. Treasury, Bloomberg reports citing sources.

Among the topics under review are how transactions involving stablecoins are processed and settled, and how market conditions affect this process.

The document outlines efforts to mitigate risks associated with the redemption of stablecoins and ‘banking panics’, which could destabilise the financial system as a whole. Officials are concerned about the rapid growth of the sector’s capitalization and the potential issuance of tokens similar to Diem from Facebook.

Sources did not rule out examining the matter by the Financial Stability Oversight Council for potential economic threats from stablecoins. This could lead to even tighter regulation.

Earlier in September, U.S. Treasury officials discussed the risks and benefits of stablecoins with representatives from the banking community and credit unions.

In July, a meeting of the President’s Working Group on Financial Markets was held. Its members discussed the rapid growth of stablecoins, their use as a means of payment, and the potential risks for end users, the financial system, and national security.

Earlier, Federal Reserve chair Jerome Powell expressed skepticism about the need for stablecoins. He likened stablecoins to money-market funds and savings banks.

In August, the issuer of USDC, the Centre consortium announced its intention to move the token’s reserves into dollars and Treasury bills.

USDT issuer Tether Limited, in its July report, noted that the share of cash and bank deposits that can be withdrawn within two days or less stood at around 10%.

The Paxos-backed PaxDollar (formerly Paxos Standard) company Paxos confirmed 100% backing of each issued USDP and BUSD with U.S. dollars and their equivalents.

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