- The STABLE Act will require that all the companies planning to issue stablecoins have a banking charter.
- The insurers of stablecoins will have to register and maintain mandatory deposits with the Federal Reserve.
- The COVID-19 pandemic is driving consumers to seek financial solutions away from the traditional banking sector.
Congresswoman Rashida Tlaib, in conjunction with congressmen Jesús "Chuy" García and Chairman of Task Force on Financial Technology Rep. Stephen Lynch, have come up with a draft bill that seeks to protect consumers against risks emanating from cryptocurrency-related scams.
The STABLE Act seeks to regulate stablecoins
The lawmakers' bill dubbed the "Stablecoin Tethering, and Bank Licensing Enforcement (STABLE) Act is designed to oversee the activities of Facebook's proposed digital currency, Diem. Other stablecoins in the market will also come under this law, where activities such as issuance and commercialization could be monitored.
Regulators and lawmakers are aware that digital currencies that are tagged or stabilized by a fiat currency such as the dollar bring with them a myriad of challenges like credit risks. Still, they have opened up the market to massive liquidity.
The STABLE Act comes amid global challenges that have emerged due to the COVID-19 pandemic. However, if made into law, the bill will address some of the barriers to mainstream financial services.
. In other words, as consumers look for alternative sources of finance in the technology sector, for example, easy access to loans/bank accounts and faster direct payments, their interests would be protected by the law.
According to the STABLE Act, any potential issuers of a stablecoin must seek a banking charter and abide by the existing banking regulations within their jurisdictions. Additionally, the bill will require that potential issuers of stablecoins disclose their intentions to the Federal Reserve Bank, the Federal Deposit Insurance Corporation (FDIC), and other appropriate banking agencies six months before the planned launch. Congresswoman Tlaib said in regards to the Act:
Getting ahead of the curve on preventing cryptocurrency providers from repeating the crimes against low- and moderate-income residents of color that traditional big banks have is—and has been—critically important.
The STABLE Act's primary purpose is to protect consumers against the risks of the emerging technologies in the digital and financial avenues while making confident of the safety and soundness of the financial institutions currently in place. All three lawmakers agree that stablecoins have tremendous benefits to the economy and could be utilized to make financial transactions more efficient.
Various technology companies have attempted to bring forth stablecoins to swim in the undiscovered sea, such as Facebook, Apple, Venmo, and even JP Morgan. However, the lawmakers say that these big companies are looking to prey on unsuspecting consumers with a promise of financial inclusion.
A law such as the STABLE Act will ensure that these firms work under the regulators to ensure the consumer's safety. According to Rohan Grey, an assistant professor at Willamette University College of Law:
The STABLE Act is a forward-looking bill that embraces digital payments innovation while simultaneously ensuring that our money remains safe, secure, and properly regulated. By extending federal banking regulation and consumer protections to cover new forms of 'deposits,' the STABLE Act addresses the growth of 'shadow payments' and 'shadow banking’—forms of financial activity that merit robust, preventative, and comprehensive regulation regardless of their specific legal and technological design.
Many feel that the STABLE Act is one of the first attempts in the US that seeks to bring regulatory clarity regarding the digitization of the dollar. It seems that if the bill becomes law, unregulated stablecoins will be an issue of the past in the United States.
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