Republicans and Democrats Strive for Consensus on State-Level Approval and Regulation of Stablecoins

Republicans and Democrats Seek Consensus on Stablecoin Regulation

Republicans are advocating for a state-level pathway for the approval and regulation of stablecoins, but they agree with Democrats that there should not be a “race to the bottom” when it comes to guardrails around digital assets. Rep. French Hill, a senior member of the Financial Services Committee, stated that stablecoins would fall under review or enforcement by the Federal Reserve. Fed Chair Jerome Powell also expressed that the central bank should play a role in regulating payment tokens.

The debate between state and federal policies in the stablecoin industry is seen as a hurdle to passing a bill, but Rep. Jim Himes, a senior Democrat on the Financial Services Committee, believes it is not insurmountable. He emphasized the importance of stablecoins having full one-to-one backing and referenced the Terra/Luna collapses as an example. Both Hill and Himes expressed optimism about the progress of talks for a stablecoins bill.

Main breakdowns:

Republicans want state-level regulation for stablecoins
Democrats agree but want to avoid a “race to the bottom”
Fed Chair Powell supports central bank involvement in regulating payment tokens
State versus federal policy tension seen as a hurdle, but not insurmountable
Consensus on stablecoin regulations and crypto markets expected before end of July

A Republican-led market structure bill granting broader oversight power to the Commodity Futures Trading Commission (CFTC) over digital commodities markets is also being debated. Democrats have paired this bill with the stablecoins bill due to the role stablecoins play in cross-currency transactions. However, more talks are needed to build consensus on the bills.

Hot Take:

Despite the differences in state and federal policies, Republicans and Democrats are optimistic about reaching consensus on stablecoin regulations. The involvement of the Federal Reserve and the recent decision in the SEC’s case against Ripple may contribute to progress in the discussions. However, the ultimate success of any bills will depend on the support of the Biden administration and Senate Democrats.