As a divided Congress readies to vote on – and quite possibly kill – a new bill that would regulate stablecoins, it’s worth reflecting on how far ahead of the U.S. other jurisdictions are in this process and what the United States’ laggard status might mean for the dollar’s place in the future of money.
The Monetary Authority of Singapore this week released a new regulatory framework for stablecoins that, among other rules, imposes minimum capital requirements on issuers. Many see the new rules creating clarity and setting the generally crypto-friendly city-state up as a hub for these increasingly popular crypto payments instruments.
Also from Singapore, but executed in Switzerland, former Singaporean parliamentarian Calvin Cheng launched stablecoins pegged to the Swiss franc and the euro, according to a press release Tuesday. His company, Anchored Coins, is incorporated in Zug and, as a licensed member of the country’s VQF self-regulatory organization, is authorized to issue the coins under regulations established by the Swiss Financial Market Supervisory Authority, or FINMA.
The Bermuda Monetary Authority has had a licensing system for digital asset companies since 2018. In December 2022, it issued the island territory’s first license to Jewel Bank, allowing it to issue its dollar-backed stablecoin, JUSD.
In Dubai, a set of stablecoin-issuance rules has existed since the formation of the Emirate’s Virtual Assets Regulatory Authority (VARA) in March 2022.
The Canadian Securities Administrators, an umbrella organization for Canada’s provincial securities regulators, issued guidance in February to regulated crypto exchanges demanding that any stablecoin they list meet certain standards around custodial arrangements, reserve management and audits. The decision to regulate the exchange rather than the issuers, which sets up a kind of backdoor self-regulatory organization, still leaves some questions around the applicability of securities laws. But Alex McDougall, Toronto-based CEO of QCAD-issuer Stablecorp, says the rule-setting was mostly constructive, calling it “a collaborative process, not a witch hunt.”
Finally, in New York – note: not Washington, New York – payments giant PayPal harnessed the trust charter that its partner Paxos has held from the New York Department of Financial Services since 2015 to launch what Paxos calls the first regulated stablecoin in the U.S.
U.S. Rep. Maxine Waters (D-Calif.) eviscerated PayPal for launching its coin before her colleagues in the House and Senate have had time to deliberate over a federal law. Her harsh words provoked comparisons to the backlash she and others spearheaded against Facebook’s failed stablecoin, Libra, four years ago.
Some are arguing that PayPal’s move, in angering Democrats like Waters, makes it even more likely that the House stablecoin bill, which FInancial Services Committee Chair Patrick McHenry (R-N.C.) successfully got through committee last month, dies in the Democrat-controlled Senate. Already, McHenry’s bill has faced opposition from the White House. But as I argued last week, PayPal is pretty safe – there’s just too much pressure now on the federal government to support such projects. Other countries making progress on regulation adds to that pressure.
Even so, the fact that so many other places are acting constructively on this issue should be cause for concern for any policymaker charged with furthering U.S. interests globally. Even though dollar stablecoins issued in the U.S. and elsewhere are by far the most sought after in the world — mostly seen in crypto users’ demand for Circle’s USDC and Tether’s USDT – the “American opportunity” that Castle Ventures Partner Nic Carter and others see in a global “crypto dollar surge'' won't arise until USD stablecoins are given Washington’s imprimatur.
In the meantime, other countries will use their head start in regulating this rapidly evolving technology to grab a share of this new field in ways that could undermine U.S. financial leadership. Would it matter if a Swiss-issued, euro-backed stablecoin took market share away from dollars? Maybe not so much. But what if China, which is already working with Russia and other allies on crypto solutions that bypass the dollar in foreign trade, fills the vacuum?
I suppose I shouldn’t complain too much. The world might be a much better place if the U.S. squanders this opportunity to turn open-access protocols and the natural demand for dollars into a new form of domination.
But the flip side is that if, as expected, the legislative process in the U.S. drags on for a lot longer, it will perpetuate the existing system of Washington-regulated, Wall Street-managed surveillance. That’s a system that puts bank compliance officers and many other types of middlemen into subtle but powerful rent-seeking positions within the global financial system, imposing trillions of dollars in unnecessary costs and often insurmountable barriers to financial access on every person on earth.
It’s time to act.
