Stablecoin Regulation Good Answers

Impossible for stable coins to threaten the financial system; even if all of crypto went away the financial system would still be standing

Nate DiCamillo, 11-8, 21, Quartz, The US is dragging its heels on critical stablecoin regulations, There isn’t an immediate systemic risk tied to stablecoins, said Steven Kelly, a research associate at the Yale Program on Financial Stability, which is focused on understanding financial crises. “The entire crypto universe could go to zero tomorrow, and the financial system would stay standing,” Kelly said. But issues would arise if stablecoins—as one part of the crypto ecosystem—become the primary link between traditional markets and crypto markets, Kelly added. The risks in the crypto markets are myriad: They can include anything from Elon Musk (or Snoop Dogg or Gene Simmons) tweeting about a specific crypto asset to hacks of various crypto protocols, the basic set of rules underpinning blockchains. “If crypto investors get unwound and stablecoins are forced to dump their investments, that to me is a bigger risk than a stablecoin holder parsing the balance sheet of Tether’s bank in the Bahamas and deciding that they don’t like what they see,” Kelly said. “That to me is not really a risk.” Plus, unlike a run on a bank, in which depositors would have trouble getting their money out, crypto traders can easily move into other stablecoins or even other cryptocurrencies if investors lose confidence in one coin or another. “The big danger that the regulators seem to be worried about is if the stable coin in question is not backed sufficiently to be able to realize that level of liquidity,” Acheson said, adding that “there’s no sign that it wouldn’t be able to realize that level of liquidity.”

Biden stablecoin regulations undermine stablecoins and innovation in the space

Norbert Michel and Jennifer J. Schulp, 11-5, 21, A Simple Proposal for Regulating Stablecoins, Rather than acknowledge these possible benefits, the Biden administration’s new report endorses several ideas that proponents of strict stablecoin regulations have been promoting for years. The report’s main recommendation—that only federally insured depository institutions be allowed to issue stablecoins—is profoundly anti‐​competitive and in direct conflict with the administration’s stated goal of guarding against an “excessive concentration of economic power.”11 Recommending that the FSOC review whether stablecoins threaten financial stability is both misguided and, at best, delays providing a clear regulatory framework.12 These and other ideas promoted by advocates for strict stablecoin regulations are ill‐​advised. Some proposals fail to provide the much‐​needed clarity that the cryptocurrency industry needs, and others are based on a fundamentally flawed concept of stablecoins. Some share both of these weaknesses. For example, regulating stablecoins like bank accounts is not a good solution because unlike bank deposits, stablecoins serve a niche payment function for transferring funds between crypto exchanges without having to transfer back and forth into a national fiat currency. The stability of a stablecoin’s value is tied to other assets, and stablecoin holders know that they can only convert into a national fiat currency by selling their coins. Moreover, there is no readily apparent justification for forcing federal taxpayers to back firms that issue stablecoins. Some have suggested regulating stablecoins like money market mutual funds, but that solution is no better. Unlike money market mutual funds, stablecoins are not investments and are designed to maintain a stable value without offering the traditional principal‐​interest component of a capital market investment. Former Commodity Futures Trading Commission (CFTC) chairman Timothy Massad has suggested that the FSOC require the Federal Reserve to regulate stablecoins as a systemically important payment activity.13 But such an approach merely assumes that these coins pose systemic risks to financial stability—an assumption that is not warranted.14 Similarly, all the proposals that the administration has endorsed appear to be driven by the desire to prevent stablecoin use from growing and to isolate the banking industry from competition. The proposals go much farther than needed, thus threatening to inhibit beneficial innovations in the payments system.

There is no threat to the financial system and people should be able to take risks

David Zoris, 11-1, 21, Why Stablecoin Regulation Isn’t ‘Urgent’, It repeatedly suggests that stablecoins pose an immediate threat to consumers, if not the financial system as a whole. It describes the situation as “urgent,” for instance stating that “legislation is urgently needed” to address the issue. But the language of urgency in regulation and legislation is almost always reason to worry about a power grab in the making. In this case, the sense of urgency also seems clearly wrong. Stablecoins are still an extremely niche financial instrument, in usage if not in overall value. Serious oversight is justified in the long term if stablecoins become more widely adopted as a consumer payments instrument, which could expose everyday users to serious and hidden risks. But right now they are overwhelmingly used by speculative traders who, it must be said, should be well aware of their inherent risks and seem to simply not care. Even assuming that the collapse of a stablecoin like tether would impact the market for bitcoin, only about 14% of Americans currently own bitcoin, and they should know it’s still a speculative investment (especially now that the Federal Trade Commission has warned crypto exchanges against downplaying risks in their marketing). I am personally very worried that financial instability could lead to the rapid and chaotic unwind of stablecoins, with serious consequences for crypto-assets up to and including bitcoin. But regulators shouldn’t be in the business of preventing people from losing money when they make risky bets.

Stable coin regulations will disrupt international regulatory approaches

  ForKast News, 10-11, 21, The Financial Stability Board (FSB) — an international body that monitors and makes recommendations about the global financial system — this month said that countries’ implementation of its recommendations for “global stablecoin” regulations was “still at an early stage” and international coordination was critical to overcoming regulatory arbitrage. Carlo Meijer, economist, Fin Extra, 7-31, 21, Stablecoins are not that stable: what regulatory approach?, Another major regulatory challenge relating to global stablecoins is international coordination of regulatory efforts across diverse economies, jurisdictions, legal systems, and different levels of economic development and needs. There is not (yet) a uniform regulatory approach of regulators worldwide relating to stablecoins. Calls for the harmonization of legal and regulatory frameworks include areas such as governing data use and sharing, competition policy, consumer protection, digital identity and other important policy issues.

Stablecoin regulation fails unless it’s international

ForKast News, 10-11, 21, Da Roza adds that regulation for global stablecoins won’t work well unless everybody has the same or similar standards. “There should be a global approach to the regulation of stablecoins in order to prevent systemic risk,” Da Roza said. The directives will need to come through global bodies such as FATF, BIS and FSB.” Global standard-setting bodies such as the Basel Committee on Banking Supervision (BCBS), Financial Action Task Force (FATF), Committee on Payments and Market Infrastructures (CPMI) and International Organization of Securities Commissions (IOSCO) have been taking steps to assess whether and how existing international standards may be applied to stablecoins.

Acting too quickly to regulate stable coins threatens innovation and American financial leadership

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