Rep. Josh Gottheimer (D-NJ) on Tuesday joined the list of policymakers weighing in on the debate over stablecoins, which are cryptocurrencies backed by the U.S. dollar and other so-called fiat currencies.
The New Jersey Democrat released a "discussion draft" of The Stablecoin Innovation and Protection Act of 2022, which aims to separate stablecoins from other types of more volatile cryptocurrencies through "appropriate protections in place for consumers and investors," according to a news release. A spokesperson for Gottheimer didn't respond to a request for comment.
Gottheimer's proposal defines "qualified" stablecoins as digital money that can be redeemed for U.S. dollars on a one-to-one basis that is issued either by an insured depository institution such as a bank or a non-bank qualified stablecoin issuer. The stablecoins would be subject to the oversight authority by the Office of the Comptroller of the Currency (OCC) while the Federal Deposit Insurance Corporation (FDIC) will develop a Qualified Stablecoin Insurance Fund to manage the redemption payments.
"The expansion of cryptocurrency offers tremendous potential value for our economy," Gottheimer, a Democrat member of the U.S. House Financial Services Committee, said in the release. "But for cryptocurrency to grow and thrive here in the United States, instead of overseas, we must provide more direction and certainty to the marketplace to help boost innovation and protect consumers."
A handful of crypto-related trade groups issued statements in support of Gottheimer’s legislation, as did Circle, the principal operator of USD Coin. "Supporting bank and non-bank innovations in the payment system is key to long-range competitiveness and broad optionality for how dollars move in the 21st century," Dante Disparte, Circle’s chief strategy officer and head of global policy, said in the release.
"Rep. Gottheimer's bill represents the most comprehensive and well-thought-out stablecoin legislation we've seen to date," Blockchain Association Executive Director Kristin Smith said in the release. "We are pleased that Congress is taking a proactive approach by engaging with stakeholders in industry and government as they consider the best path for stablecoin regulation."
Teana Baker-Taylor, the Chamber of Digital Commerce's chief policy officer, said her organization looks forward to working with the committee to create a regulatory framework for both established stablecoin operations and new entrants to the market "that puts in place proper safeguards, preserves innovation, and enables a level playing field," per the release.
Nellie Liang, the undersecretary for domestic finance in the Treasury Department, has expressed support for Gottheimer’s proposal in the past.
Liang testified before the House Financial Services Committee last week and spoke with the Senate Banking Committee Tuesday. In his opening remarks Tuesday, Senate Banking Chair Sherrod Brown, D-Ohio, said, "We need a strong, proactive approach from regulators and Congress to limit stablecoins’ risks for working Americans."
"As our economy continues to recover from COVID-19 — as workers are finally starting to see higher wages and more bargaining power in the workplace — the last thing we need is for a risky new financial product to cause disaster," Brown said, per American Banker.
The President's Working Group on Financial Markets (PWG) issued a stablecoins report last year calling on Congress to address the market risks of digital currencies by passing legislation to improve oversight and provide increased protection to investors.
The PWG called for stablecoins to be issued by insured depository institutions. Some members of Congress including Rep. Patrick McHenry (R-NC), ranking Republican on the House Financial Services Committee, have said the requirement was unnecessary.
"Washington's knee-jerk reaction to regulate out of fear will not allow stablecoins to achieve their full potential in the myriad of solutions that they may be able to present," McHenry said during last week's hearing. "This new technology, like all financial technology, deserves appropriate and thoughtful regulatory approaches."
According to a New York Federal Reserve Bank web post, interest in stablecoins has skyrocketed over the past two years, rising from a market capitalization of $5.7 billion in December 2019 to $155.6 billion this month.
Cryptocurrency skeptics, such as Financial Services Committee Chair Maxine Waters (D-CA), argue the public needs to be protected from the risks of stablecoins, although she noted in remarks during last week's hearing that digital money also presents opportunities for communities of color "that have been left behind by our financial system."
Brown asked Liang Tuesday if there is "anything right now stopping Amazon or Walmart or another big company from starting their own stablecoin." Liang responded by pointing out that there are no legal prohibitions that would prevent a company from issuing their own digital currencies, American Banker reported.