The acting Chairman of a US federal agency that supplies deposit insurance to U.S. depository institutions recently gave a speech addressing the regulation of crypto-assets. Among other things, the Chairman noted that federal banking regulators are taking "a cautious and deliberate approach ... to bank participation in crypto-asset-related activity ... for several reasons: (a) the risk of these activities to safety and soundness, consumer protection, and financial stability; (b) the lack of history and familiarity with these assets both in the marketplace and within regulated financial institutions; and (c) the dynamic nature of these assets." According to the Chairman, "before banks engage in crypto-asset-related activities, it is important to ensure that: (a) the specific activity is permissible under applicable law and regulation; (b) the activity can be engaged in [in] a safe and sound manner; (c) the bank has put in place appropriate measures and controls to identify and manage the novel risks associated with those activities; and (d) the bank can ensure compliance with all relevant laws, including those related to anti-money laundering/countering the financing of terrorism and consumer protection."
Addressing stablecoins, among other things the Chairman said, "Thus far ... stablecoins have predominantly been used as a vehicle to buy and sell crypto-assets for investment and trading purposes – there has been no demonstration so far of their value in terms of the broader payments system." However, the Chairman noted, "there may be merit in continuing to examine the potential benefits associated with payment stablecoins ... designed specifically as an instrument to satisfy the consumer and business need for safe, efficient, cost-effective, real-time payments."
The Chairman cited "three important features that could make payment stablecoins significantly safer than the stablecoins currently in the marketplace": (1) ensuring prudential regulation and separation from deposit taking by issuance of a payment stablecoin through a bank subsidiary; (2) requiring payment stablecoins to be backed dollar for dollar by high-quality, short-dated U.S. Treasury assets; and (3) transacting payment stablecoins on permissioned ledger systems with robust governance and compliance mechanisms. The Chairman also noted that to the extent a payment stablecoin system is developed, it should complement the forthcoming FedNow system and the potential future development of a U.S. central bank digital currency.
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