Representative Patrick McHenry, Chairman of the House Financial Services Committee, along with the Chairman of the Digital Assets, Fintech Subcommittee, French Hill, and the Chairman of the Oversight and Investigations Subcommittee, Bill Huizenga, have sent a letter to US Federal Reserve Chair Jerome Powell, criticizing the Fed for undermining progress on legislation aiming to regulate stablecoins.
The Representatives state that Powell and the Federal Reserve are impeding progress on stablecoins. A bill creating a regulatory path for stablecoins has been in the works in Congress for some time now. Currently, the Federal Reserve is investigating the potential for central bank digital currency (CBDC) – or a digital dollar. While no final decision is in place, a digital dollar could usurp stablecoins as a form of payment and value transfer. Or, a CBDC could be a tool for institutions or perhaps not be issued at all.
There is also the recently launched FedNow program that allows member banks to enable immediate transfer of funds. This service could emerge as a competing service for value transfers.
Stablecoins, if regulated correctly, could be an update to existing payment rails like those used for credit cards today – allowing for immediate transactions at a lower cost for users. Currently, there are multiple stablecoin issuers operating, but the regulatory environment is opaque.
The letter sent to Powell focuses on the recent “regulatory letters” by the Fed regarding a new “Novel Activities Supervision Program” (SR 23-7) and another notice that cautions member banks for activity involving “dollar tokens” (SR 23-8).
The letter states:
“… if these letters are left in place, they will undoubtedly deter financial institutions from participating in the digital asset ecosystem.
Congress understands the need to provide regulatory certainty for payment stablecoins and the broader digital asset ecosystem. A regulatory framework established by Congress will better protect consumers and provide certainty to market participants. This recognition was the impetus for the Clarity for Payment Stablecoins Act, a bill that was favorably reported by the House Committee on Financial Services on a bipartisan basis. Yet, instead of working with Congress to establish a workable regime, less than two weeks after the Committee’s action, the Fed released SR 23-7 and SR 23-8.”
The Representatives say the Fed is preventing banks from issuing stablecoins, adding that it is clear the Fed does not want to allow for “public, permissionless blockchains” in regard to stablecoins.
