As U.S. lawmakers push for the pressing regulation of stablecoins, the Monetary Stability Oversight Council (FSOC) and the Federal Reserve Board warn concerning the dangers of stablecoin runs that threaten the nation’s monetary stability. Treasury Secretary Janet Yellen introduced up the terrausd (UST) fiasco for instance of why a complete regulatory framework is urgently wanted.
Treasury Secretary Janet Yellen Testifies Earlier than Senate Committee
Stablecoins have develop into a scorching subject in Washington. Following Monday’s terrausd (UST) fiasco, U.S. lawmakers are calling for the pressing regulation of stablecoins.
On Tuesday, U.S. Treasury Secretary Janet Yellen introduced up UST for instance of a “stablecoin run” throughout her testimony earlier than the Senate Committee on Banking, Housing, and City Affairs on the Monetary Stability Oversight Council (FSOC) Annual Report.
Senator Pat Toomey (R-Pa.) requested Yellen to substantiate her view on the necessity to regulate stablecoins. “I wish to ask in case you can affirm for the document right here that it’s nonetheless your view that it will be important, I might argue even pressing, for Congress to move laws governing the laws of the cost stablecoins,” he mentioned.
Yellen replied:
Sure, I’m joyful to substantiate that, Senator Toomey.
She continued: “The president’s working group issued a report concluding that the present statutory and regulatory frameworks don’t present constant and complete requirements for the dangers of stablecoins as a brand new kind of cost merchandise, and urges Congress to enact laws to make sure that stablecoins and such preparations have a federal prudential framework.”
The treasury secretary elaborated: “I might urge a bipartisan motion to create such a framework. We might sit up for working with you.” She added:
There was a report this morning within the Wall Road Journal {that a} stablecoin referred to as terrausd [UST] skilled a run and had declined in worth.
“I feel that merely illustrates that this can be a quickly rising product and there are dangers to monetary stability and we’d like a framework that’s acceptable,” Yellen confused.
Toomey rapidly responded: “It’s necessary to notice that the stablecoin to which you refer, I consider, is an algorithmic stablecoin. So which means by definition it isn’t backed by money or securities because the — in case you can name them — ‘extra standard stablecoins.’”
The stablecoin terrausd (UST) lost its parity with the U.S. greenback and dropped to an all-time low of $0.66 per unit on Monday.
Monetary Stability Oversight Council Annual Report Warns About Stablecoin Runs
The FSOC annual report additionally states that stablecoins could also be susceptible to run dangers. Noting that “the potential for the elevated use of stablecoins as a method of cost raises a spread of prudential issues,” the report states:
If stablecoin issuers don’t honor a request to redeem a stablecoin, or if customers lose confidence in a stablecoin issuer’s potential to honor such a request, runs on the association might happen that will lead to hurt to customers and the broader monetary system.
Federal Reserve Board’s Report on Monetary Stability Says Stablecoins Are Vulnerable to Runs
The FSOC’s view on stablecoins is shared by the Federal Reserve. The Board of Governors of the Federal Reserve System revealed its semi-annual Financial Stability Report Monday equally warning concerning the run dangers of stablecoins.
Among the many dangers mentioned within the report is “funding dangers,” which “expose the monetary system to the chance that buyers will ‘run’ by withdrawing their funds from a selected establishment or sector,” the report particulars, elaborating:
Some kinds of cash market funds (MMFs) and stablecoins stay vulnerable to runs.
As well as, “The stablecoin sector continued to develop quickly and stays uncovered to liquidity dangers,” the report notes.
What do you consider Treasury Secretary Yellen’s feedback and the warnings by the Federal Reserve and the Monetary Stability Oversight Council on stablecoins? Tell us within the feedback part beneath.
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