By Alicia Maher
The US President’s Working Group (PWG) has released its report on stablecoins. The report describes the risks associated with stablecoins and their use in the financial markets. In the report, the PWG identified the key risks and ended with a demand for new laws to be created by Congress.
On November 1, 2021, Gary Gensler, the chairman of the Securities and Exchange Commission tweeted his delight and appreciation to have worked with the PWG on the project. Gensler is in charge of the SEC, a top regulatory agency involved in the study of stablecoins.
In their press briefing after the presentation of the report, the officials said that stablecoins are “a complex multifaceted product with a complex multifaceted set of risks.” The PWG proposed that laws should be created to enforce regulations on stablecoins as insured deposits subject to appropriate supervision at two levels; the depository institution and the holding company.
Previous clashes between Tether, the leading stablecoin provider, and the US Treasury have sparked heated debates about the economic impact and future of stablecoins. For years, the regulation of stablecoins and other cryptocurrencies has been a source of contention.
The PWG Previously Released Guidelines
The President formed the working group with the mandate to investigate stablecoins and make recommendations for the government to follow due to differences of opinion and the potential impact of stablecoins on the economy. The PWG started working on the project in late 2020, and on January 4, 2021, it published an article outlining seven working principles for the creation of stablecoins: financial stability, end-user protection, market integrity, operational resilience, functional payments and trading markets, and macroeconomic and international monetary stability. Furthermore, the PWG stated that stablecoins must meet current and future standards.
The PWG also called on the various regulatory bodies in the US: the DoJ, the SEC, the CFTC, and the Federal Reserve to continue with existing protocols to ensure safety before new laws and regulations are made or come into practice. The PWG’s advice for stablecoins to become insured deposits creates a new status for stablecoins issuers who are now set to be on the same level as traditional banks.
Stablecoins and CBDCs
Although the report does not reference CBDCs, it is expected that similar guidelines will be released when the US government finalizes plans on the project. CBDCs are similar to stablecoins in that they are equal in value to fiat dollars and are digital tokens. But that’s most likely the end of their similarities. Where stablecoins are built on decentralized exchanges, CBDCs are created by the central banks and are firmly under the government’s control in a centralized market.
There has been much debate about the preference of the government for CBDCs over stablecoins but as of now, there is no clear choice. One thing is clear though, the government will do all that it can to provide a safe and comfortable environment for digital tokens to thrive within the US economy.