As U.S. lawmakers push for the pressing regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board warn in regards to the dangers of stablecoin runs that threaten the nation’s monetary stability. Treasury Secretary Janet Yellen introduced up the terrausd (UST) fiasco for instance of why a complete regulatory framework is urgently wanted.
Treasury Secretary Janet Yellen Testifies Before Senate Committee
Stablecoins have change into a sizzling matter in Washington. Following Monday’s terrausd (UST) fiasco, U.S. lawmakers are calling for the pressing regulation of stablecoins.
On Tuesday, U.S. Treasury Secretary Janet Yellen introduced up UST for instance of a “stablecoin run” throughout her testimony earlier than the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Council (FSOC) Annual Report.
Senator Pat Toomey (R-Pa.) requested Yellen to substantiate her view on the necessity to regulate stablecoins. “I would like to ask if you can confirm for the record here that it is still your view that it is important, I would argue even urgent, for Congress to pass legislation governing the regulations of the payment stablecoins,” he stated.
Yellen replied:
Yes, I’m completely happy to substantiate that, Senator Toomey.
She continued: “The president’s working group issued a report concluding that the current statutory and regulatory frameworks don’t provide consistent and comprehensive standards for the risks of stablecoins as a new type of payment products, and urges Congress to enact legislation to ensure that stablecoins and such arrangements have a federal prudential framework.”
The treasury secretary elaborated: “I would urge a bipartisan action to create such a framework. We would look forward to working with you.” She added:
There was a report this morning within the Wall Street Journal {that a} stablecoin often known as terrausd [UST] skilled a run and had declined in worth.
“I think that simply illustrates that this is a rapidly growing product and there are risks to financial stability and we need a framework that’s appropriate,” Yellen careworn.
Toomey shortly responded: “It’s important to note that the stablecoin to which you refer, I believe, is an algorithmic stablecoin. So that means by definition it is not backed by cash or securities as the — if you can call them — ‘more conventional stablecoins.’”
The stablecoin terrausd (UST) lost its parity with the U.S. greenback and dropped to an all-time low of $0.66 per unit on Monday.
Financial Stability Oversight Council Annual Report Warns About Stablecoin Runs
The FSOC annual report additionally states that stablecoins could also be weak to run dangers. Noting that “the potential for the increased use of stablecoins as a means of payment raises a range of prudential concerns,” the report states:
If stablecoin issuers don’t honor a request to redeem a stablecoin, or if customers lose confidence in a stablecoin issuer’s skill to honor such a request, runs on the association may happen that will end in hurt to customers and the broader monetary system.
Federal Reserve Board’s Report on Financial Stability Says Stablecoins Are Prone to Runs
The FSOC’s view on stablecoins is shared by the Federal Reserve. The Board of Governors of the Federal Reserve System printed its semi-annual Financial Stability Report Monday equally warning in regards to the run dangers of stablecoins.
Among the dangers mentioned within the report is “funding risks,” which “expose the financial system to the possibility that investors will ‘run’ by withdrawing their funds from a particular institution or sector,” the report particulars, elaborating:
Some sorts of money market funds (MMFs) and stablecoins stay vulnerable to runs.
In addition, “The stablecoin sector continued to grow rapidly and remains exposed to liquidity risks,” the report notes.
What do you consider Treasury Secretary Yellen’s feedback and the warnings by the Federal Reserve and the Financial Stability Oversight Council on stablecoins? Let us know within the feedback part under.
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