[MARYLAND] The Senate Banking Committee will vote on Thursday (Mar 13) on a bipartisan deal to regulate stablecoins as House Republicans push for quick action on their own bill.
Committee chair Tim Scott announced a revised proposal late Monday that he said was negotiated with stakeholders in the industry and “will protect consumers and expand financial inclusion for Americans across the country”.
Kirsten Gillibrand, the top Democratic sponsor, said the revised version improves “risk mitigation, state pathways, insolvency, transparency, and more”.
Legislation regulating dollar-backed stablecoins gained momentum in Congress after US President Donald Trump threw his political weight behind the effort.
Trump praised efforts to provide regulatory certainty for stablecoins at last week’s White House crypto summit, and Treasury Secretary Scott Bessent said stablecoins would help ensure the “dominance” of the US dollar globally.
Backers view stablecoins as disruptors of existing payment systems and claim that the tokens allow faster and cheaper transactions. But the tokens lack the guardrails of traditional banking – such as FDIC insurance – and customers could be left in the lurch if a stablecoin fails. The US government could then face demands for a costly taxpayer bailout.
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Stablecoin legislation is also a priority for the House Financial Services Committee chair French Hill, who held a hearing on Tuesday where financial executives promoted dollar-backed stablecoins as a way to lower transaction costs for US consumers and businesses.
But Maxine Waters, the top Democrat on the House committee, warned the House Republican measure fails to include sufficient safeguards, such as a ban on tech companies such as Elon Musk’s X or Meta Platforms’ Facebook issuing their own stablecoins.
“President Trump and Elon Musk have undermined all of this work,” she said, citing Trump profiting off of his own meme coin and creating a reserve with billions in cryptocurrencies, which she said would enrich Trump’s “MAGA cronies”.
Waters said she still hopes to craft a bipartisan House bill – citing her own draft she released last month – but vowed “I will do everything I can to stop Musk”.
Crypto companies, meanwhile, pitched stablecoins as a way to bring financial services to anyone with a phone at a House committee hearing.
“A blockchain-based dollar can be transferred instantaneously, at virtually no cost, and held by anyone with simply an Internet connection and smartphone,” Charles Cascarilla, chief executive officer of stablecoin issuer Paxos, said in prepared testimony.
Cascarilla assailed the current bank-based financial system as amounting to a “regressive tax” laden with “ATM charges, overdraft penalties and wire transfer costs that disproportionately burden working families”.
Cascarilla was joined by other financial executives including Stripe CEO Patrick Collison and Caroline Butler, the head of digital assets at The Bank of New York Mellon at the hearing.
The fast-growing industry already processes billions of US dollars a day in transactions, and an assortment of fintech companies and banks are either launching new tokens or are considering doing so.
While US consumers typically use credit cards and debit cards to pay for retail goods, data compiled by Cathie Wood’s ARK Invest show global stablecoin transaction volumes topped US$15 trillion in 2024.
Dollar-based stablecoins bolster demand for US dollars and debt, because they are intended to be backed at least one-to-one with dollar-based assets, such as short-term government debt.
Legislation under consideration in the House and Senate would put issuers of stablecoins under the eyes of federal or state regulators to ensure they have enough US dollars and liquidity, while complying with rules such as those targeting money laundering.
Dollar-backed stablecoins distributed by the biggest issuers Tether and Circle are already used in billions of US dollars of transactions a day, though traditional credit and debit cards dominate retail transactions.
The specifics of the legislation are hard fought because they can advantage – or disadvantage – key players, with billions in profits at stake. One fight includes whether to require US registration of stablecoin issuers, which could hurt El Salvador-based Tether and benefit its US-based rival, Circle.
Bankers also worry about competition from the companies looking to take a big chunk of their business, with the potential for stablecoins to siphon off deposits and transaction fees while reducing the availability of credit.
“History shows us time and again that having fewer deposits in the banking system leads to fewer loans being made and lower economic output being generated,” the American Bankers Association said in a letter to the committee.
The association also said guardrails need to be in place to reduce the chances of a run on a stablecoin, which could force a fire sale of assets, depeg the token from the US dollar and then spread fear that other stablecoins would fail.
The lack of a backstop, especially if stablecoins grow large enough to become systemically important, has long been a concern. A central bank digital currency issued by the Federal Reserve would likely be safer, but that would threaten the business model of private token issuers. The industry and their backers in Congress, including Hill, want to ban the Fed from issuing one. BLOOMBERG