The United States could soon be one of the first countries making stablecoins illegal. In order for users to be able to handle stablecoins, crypto exchanges and companies would have to receive government approval. This could definitely have a negative impact on the crypto market, which is highly dependant of stablecoins to reduce investors’ exposure to volatile digital assets.
Could the United States Make Stablecoins Illegal?
The U.S. Congress has recently been introduced to a new bill that aims at regulating stablecoins. The bill would require companies and services providers in the cryptocurrency market to receive government approval before offering stablecoins to users. If they do not receive the approval and continue to operate with them, the bill would make stablecoins illegal.
The bill introduced to the U.S. Congress reads as follows:
“It shall be unlawful for any person to issue a stablecoin or stablecoin-related product, to provide any stablecoin-related service, or otherwise engage in any stablecoin-related commercial activity, including activity involving stablecoins issued by other persons, without obtaining written approval in advance.”
Companies would have to receive approval from different agencies. Some of these institutions providing approval for handling and providing stablecoin trading include the Board of Governors of the Federal Reserve System, the Corporation and others.
During the last few months, there have been several government agencies that have pushed for stablecoin regulations. For example, Christine Lagarde, the president of the European Central Bank (ECB) explained that the ECB must ensure that payments in the euro area remain innovative.
“Although stablecoins could drive additional innovation in payments and be well integrated into social media, trade and other platforms, they pose serious risks,” she mentioned a few days ago.
As Lagarde explains, stablecoins “could threaten” financial stability and monetary sovereignty. Moreover, the issuer may not be able to guarantee a fixed value and a run could occur. Moreover, a large shift towards stablecoins from bank deposits could have an impact on banks’ operations and the transmission of monetary policy.
The president of the ECB was not only talking about Tether (USDT), the largest stablecoin in the world. She was also thinking of those stablecoins that could be created by other companies, including Facebook. Finally, she explained that the dominant positions of these firms may harm competitors and consumer choice. The stablecoins they create could also raise concerns over data privacy and misuse of personal information.