US Plans to Apply Bank-Level Regulatory Framework to Stablecoins

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Suhwan] The U.S. administration under Joe Biden has announced plans to apply a regulatory framework for stablecoins (cryptocurrencies pegged to fiat currencies) at the level of banking institutions.

According to the Wall Street Journal (WSJ) on the 1st (local time), a government committee led by the Treasury Department proposed to Congress on the same day to implement a new regulatory framework for stablecoins.

Stablecoins are virtual assets designed to minimize price volatility by being pegged to the value of fiat currencies such as the U.S. dollar.

On the day, the U.S. government committee reportedly suggested that the Financial Stability Oversight Council (FSOC) should consider designating stablecoins as a major product within the financial system, based on the judgment that risk management for stablecoins is necessary.

The FSOC plays a role in analyzing the risks of financial assets that could threaten stability within the U.S. financial system. If the FSOC indeed considers stablecoins as subjects for risk management, the Federal Reserve (Fed) is likely to apply stricter risk management standards to institutions issuing stablecoins.

In the report submitted to Congress on the day, the authorities emphasized, "The rapid growth of the stablecoin market further increases the necessity of such (regulatory framework) measures."

According to WSJ, the market capitalization of major stablecoins such as Tether, Circle, and Binance surged from $11 billion (approximately 13 trillion KRW) last year to $116 billion (approximately 136 trillion KRW) this year.

Stablecoins are already being used as a means of currency for buying and selling assets on major cryptocurrency exchanges such as Coinbase, and there is potential for them to be used as a payment method in the future. Consequently, it is anticipated that stablecoins will compete for dominance as a currency with traditional financial institutions, including card companies like Visa and Mastercard.

Facebook has already announced plans to launch its own stablecoin called 'Diem' through collaboration with other IT companies.

In this environment, the authorities believe that if holders of stablecoins begin to doubt the value of their assets, it could cause instability across the market.

The authorities also noted that stablecoins are vulnerable to bank runs (massive withdrawals), which could pose a significant threat to the overall capital markets.

The report warned, "In the event of a bank run, these assets (stablecoins) could be sold off at excessively discounted prices, and this risk could spread not only to other stablecoins but also to other types of financial institutions."

This content was produced with the assistance of AI translation services.