Following Release of Stablecoins Report, Open Markets Urges Regulators to Use Existing Tools to Protect Investors and Mitigate Systemic Risks
Addressing threats to fair competition, and investors and consumers should come before facilitating the growth of private money
WASHINGTON—Today, the Biden Administration released its report on stablecoins, digital currencies tied to fiat currencies such as the U.S. dollar.
Previously, Open Markets urged the President’s Working Group on Financial Markets (in collaboration with the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation), which wrote and released the report, to address investor protection and the systemic risk issues of stablecoins in this report.
Open Markets also published a factsheet about the risks of decentralized finance (“DeFi”) which includes a section detailing the problems related to the lack of Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance among many DeFi platforms.
In response, Open Markets Institute Financial Policy Director Alexis Goldstein issued the following statement:
“While this report is a good start, it fails to highlight that stablecoins’ use as a means of payment is highly untested and is likely inconsistent with policy goals such as inclusion and competition. Apart from the portion devoted to DeFi, the report also minimizes the fact that speculation and avoidance of KYC, AML and Countering the Financing of Terrorism (“CFT”) compliance are central use cases of stablecoins at present.
“There are significant obstacles to using stablecoins as payments: issues with speed, cost, and scalability. It raises even more concern that stablecoins are currently free-riding off the rails of the existing banking system, as you must use bank-connected crypto trading platforms to exchange them for dollars.
“It’s unclear why the prudential regulators would want to facilitate the growth of private money when there are multiple ways to improve payments outside of the crypto ecosystem — such as improving FedNow, a federal program used by the central banks for instant payment services, or getting more people connected to the existing banking system through initiatives like postal banking.
“The report makes it clear that the market regulators and the Financial Crimes Enforcement Network (FinCEN) have existing legal tools to constrain stablecoins’ risk. Open Markets encourages regulators, as it has previously, to focus on how they can address investor protection, consumer protection, and systemic risk issues using their current, diverse authorities.”
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Read the full report here.
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