Fed’s Christopher Waller supports stablecoins, citing boost to dollar dominance

Federal Reserve Governor Christopher Waller supports stablecoins and sees them as a way to secure the US dollar’s dominance as the world’s reserve currency. In an interview on Thursday, Waller stressed that stablecoins could serve as an essential tool in the global economy but only under strict regulation.

“You might want some regulatory rails around it to make sure the money is there,” Waller added. He explained that while stablecoins can technically be tied to any currency, the majority are pegged to the dollar, which strengthens the greenback’s role internationally.

His comments, of course, come amid trending efforts to regulate stablecoins and avoid the type of market chaos that hit the crypto industry during the Terra and FTX crashes.

Congress drafts bill to control stablecoin issuance and reserves

Congress has already introduced draft legislation to create a framework for stablecoin regulation. Both Democrats and Republicans appear ready to collaborate on new laws, according to the bill, making it one of the few areas of bipartisan agreement in Washington.

Financial Services Committee Chairman Rep. French Hill and Digital Assets Subcommittee Chair Rep. Bryan Steil have released a discussion draft for the bill. According to the draft, the legislation will make it illegal for anyone to issue a stablecoin in the United States unless they are a “permitted payment stablecoin issuer.”

The bill mandates that issuers maintain a 1-to-1 reserve of liquid assets to back the stablecoins they issue. Reserves can include US currency, insured deposits, short-term Treasury bills with a maturity of 90 days or less, and central bank deposits.

Issuers must publicly disclose the composition of these reserves every month. Reports will need to specify both the total number of stablecoins issued and the exact breakdown of assets backing them.

In addition to reserve transparency, the proposed law includes a hard rule against rehypothecation. Issuers cannot reuse or pledge their reserves for other purposes except to meet liquidity needs through repurchase agreements.

Stablecoins have lost their pegs to the dollar multiple times due to market events, regulatory actions, and even cyberattacks on decentralized finance (DeFi) protocols.

The proposed legislation also sets a tight timeline for regulators. Federal and state agencies would have 180 days after the bill’s passage to create and implement a regulatory framework. For companies that want to issue stablecoins, the draft bill for both bank and nonbank entities must apply to the primary federal payment stablecoin regulator for approval.

Regulators have 45 days to notify applicants if their submission is complete. Once an application is deemed complete, they have 120 days to either approve or deny it.

If an application is denied, the regulator must provide detailed reasons within 30 days, including recommendations on how the applicant can address any shortcomings.

Issuers also have the right to appeal denials. They can request either a written or oral hearing to challenge the decision, according to the draft.

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