Acting Comptroller of the United States Currency, Michael J. Hsu, delivered a speech on January 13, 2022, highlighting the benefits of regulating the cryptocurrency space, especially stablecoins, as a way to to provide peace of mind and security for those who use this type of technology.
Speaking at the BritishAmerican Business Transatlantic Finance Forum, Hsu argued that the growth of the cryptocurrency industry had been so swift that the regulatory indifference of previous years was now unsustainable, and there was a need to work on a robust legal framework.
Hsu argued that as more unbanked people start using cryptocurrencies as banking substitutes and no longer see the need for trusted third parties to transmit money, more regulatory attention is needed. needed before it’s too late:
This mainstreaming of crypto has occurred despite regulatory and legal uncertainty and a series of scams, hacks, and other disruptive events. For financial regulators like me, this presents a host of questions. Where should regulatory attention be focused? What should be done? By whom? And why?
Stabilizing stablecoins
For the US comptroller of the currency, in addition to the fight against crime, the regulation of stablecoins mainly serves to prevent latent dangers. A bank run is the most obvious of all.
A bank run is a panic episode that occurs when an unusually large number of depositors withdraw their money from banks due to fear that the institution will become insolvent or that a crisis will occur. In most cases, banks cannot give physical cash to all the depositors because their funds are in the hands of other people precisely because of the business model by which banks operate.
In the case of traditional finance, regulators can intervene. Yet, there is not much they can do when it comes to cryptocurrencies, especially decentralized ones. This is particularly notable in the case of stablecoins as these tokens are in many cases the on-ramp for traditional investors into the world of cryptocurrencies, and there is the trust that each stablecoin is backed by an equivalent fiat value. , and if that trust is broken, a run could occur, hurting the crypto world quite badly.
Fortunately, we have an effective tool to mitigate run risk: bank regulation. Stablecoin issuers subject to bank regulation would give holders of those stablecoins confidence that those coins were as reliable and “money good” as bank deposits. Even if the tide were to go out, the reserves would be there, overseen and examined by bank supervisors.
Just for context, USDT alone moves almost three times as much daily volume as Bitcoin, so a run could affect the entire crypto industry in the unlikely event that it occurs. Regulations could theoretically help ensure that stablecoins are indeed “stable” and there will be no need to panic.
Crypto Regulations: A Strategic Matter
The United States has been looking for ways to have more and more control over cryptocurrencies in an attempt to prevent another latent danger from a geopolitical standpoint: the loss of global leverage through the dollar.
Already last year, the CEO of PayPal speculated that Bitcoin could be used by China as a financial weapon. Several politicians have also warned of the potential for cryptocurrencies to damage the prominence of the dollar if early action is not taken.
The use of cryptocurrencies in the criminal underworld is also an argument mentioned ad nauseam as justification for tightening the screws.
Similarly, the recent infrastructure law proposed by Joe Biden could negatively affect the crypto industry due to exaggerated – and even unsatisfactory – KYC requirements for a diversity of players that could range from exchanges to wallets and protocols. decentralized.
Also, Jerome Powell said this week that the report on the digital dollar was ready to be presented, so this year may be pivotal for the definition of U.S. regulatory policies in the world of cryptocurrencies.
