US Lawmakers Push for Urgent Stablecoin Regulation — Fed Warns of Stablecoin Runs, Janet Yellen Cites UST Fiasco

As U.S. lawmakers push for the pressing regulation of stablecoins, the Financial Stability Oversight Council (FSOC) and the Federal Reserve Board warn concerning 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 turn into a scorching 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 wish to ask in the event you can affirm for the document right here that it’s nonetheless your view that it will be significant, I might argue even pressing, for Congress to go laws governing the rules of the cost stablecoins,” he stated.

Yellen replied:

Yes, I’m blissful to substantiate that, Senator Toomey.

She continued: “The president’s working group issued a report concluding that the present statutory and regulatory frameworks don’t present constant and complete requirements for the dangers of stablecoins as a brand new sort of cost merchandise, and urges Congress to enact laws to make sure that stablecoins and such preparations have a federal prudential framework.”

The treasury secretary elaborated: “I might urge a bipartisan motion to create such a framework. We would stay up for working with you.” She added:

There was a report this morning within the Wall Street Journal {that a} stablecoin often called terrausd [UST] skilled a run and had declined in worth.

“I believe that merely illustrates that it is a quickly rising product and there are dangers to monetary stability and we’d like a framework that’s acceptable,” Yellen careworn.

Toomey rapidly responded: “It’s essential to notice that the stablecoin to which you refer, I consider, is an algorithmic stablecoin. So meaning by definition it’s not backed by money or securities because the — in the event you can name them — ‘extra standard 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 susceptible to run dangers. Noting that “the potential for the elevated use of stablecoins as a method of cost raises a variety of prudential issues,” 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 capacity 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 concerning the run dangers of stablecoins.

Among the dangers mentioned within the report is “funding dangers,” which “expose the monetary system to the chance that traders will ‘run’ by withdrawing their funds from a selected establishment or sector,” the report particulars, elaborating:

Some forms of cash market funds (MMFs) and stablecoins stay vulnerable to runs.

In addition, “The stablecoin sector continued to develop quickly and stays uncovered to liquidity dangers,” the report notes.

What do you concentrate on 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 beneath.