On April 14, the US House Committee introduced a bill aimed at overseeing and regulating stablecoins. The Bill designates the Federal Reserve as responsible for non-bank stablecoins and mandates a temporary ban on new non-fiat-backed stablecoins, while also developing compatibility standards with the government. The Bill also directs the Fed to work on a digital dollar. If the Bill is passed into law, stablecoin issuers who fail to register may face sanctions, including up to five years in prison and a $1 million fine.
Stablecoins are a type of cryptocurrency that seeks to mitigate price fluctuations by tying their value to a dependable asset. Typically, stablecoins hold the reserved and stored money for the stablecoin in a safe place, typically a bank, where the reserved money serves as collateral for the stablecoin. For further details on this topic, please refer to our Stablecoin article (available only in Turkish).
Federal Reserve to Supervise Non-Bank Stablecoins, Approval from Credit Unions and Banks Will Be Required
The Bill regulates non-bank stablecoins such as Circle and Tether and assigns the task of approving companies that want to issue their stablecoins to the Federal Reserve. Any issuer that wants to conduct business in the United States, regardless of where the company is based, must register. Those who do not register may face sanctions, including up to five years in prison and a $1 million fine.
Should the draft become law, stablecoin companies would need to obtain approval from financial regulatory bodies like the National Credit Union Administration (NCUA), the Federal Deposit Insurance Corporation (FDIC), or the Office of the Comptroller of the Currency (OCC). This approval process is critical for ensuring both the companies' financial soundness and consumers' safety.
Two-Year Ban on Non-Fiat-Backed Stablecoins Included in Proposed Legislation
The draft bill highlights several essential measures, including granting the Federal Reserve the authority to regulate non-bank stablecoins, implementing a two-year temporary ban on non-fiat-backed stablecoins, and giving the government the power to establish interoperability standards.
In addition, if the Bill becomes law, regulatory bodies such as banking regulators and the National Institute of Standards and Technology would be able to establish various standards, including technical and legal requirements that enable users to swap and make payments between different payment systems before purchasing native stablecoins, thus facilitating their purchase.
Fed to Study the Potential Impact of the Digital Dollars
The Bill also includes provisions for the Federal Reserve to study the effects of a central bank-issued digital dollar. While the Fed has already been discussing whether to issue a digital dollar, the Bill would task it with examining and regulating specific focus areas while developing a digital dollar, such as monetary policy, financial stability, and potential impacts on individual privacy.
Stablecoins from Turkey's Legal Framework: Uncertainties and Possible Links with Electronic Money
The legal framework governing stablecoins in Turkey remains uncertain due to the absence of specific regulations. However, the literature indicates that stablecoins have similarities in terms of functionality to electronic money. The legal nature of stablecoins may vary depending on what asset they are pegged to. Additionally, the recently adopted Regulation on Markets in Crypto-assets (MiCA), which also guides Turkish law, states that stablecoins meeting certain conditions may be considered equivalent to electronic money. Nevertheless, specific legal regulations, including Law No. 6493, need to be created for stablecoins to be recognized as electronic money under Turkish law.
Stablecoins have gained significant interest in the financial sector. However, as with any new technology, having a clear legal framework to prevent abuse and misuse is crucial. The current legal situation in Turkey highlights the need for clarity in the legal definition and relevant regulations of stablecoins.
The stablecoin bill published by the US House of Representatives is an important step towards regulating stablecoins and ensuring consumer safety.
Overall, regulating stablecoins is a complex issue that requires collaboration between governments, financial institutions, and technology companies. While stablecoins have the potential to revolutionize the financial sector, it is important to have a clear legal framework to prevent misuse and abuse. The stablecoin bill proposed by the US House of Representatives is a step in the right direction, and it will be interesting to see how other countries and jurisdictions respond to this issue in the coming years.
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