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Thomas Hogan
Thomas hogan is a principal investigator at the US Institute of Economic Research.
Stablecoin regulation is one of the most controversial topics in cryptocurrency. Recent reports from U.S. regulators as well as the Biden Administration have warned that stablecoins could threaten financial stability, although many are skeptical of that claim. Previous proposals sought to regulate transparencyissuance of stablecoins, although no legislation has yet been passed.
This debate, however, One important point can be missed: the issue of refundable notes by private banks, in hard copy or electronically, already looks legal in the U.S.
Thomas Hogan is a Senior Research Associate with the American Institute for Economic Research. He was Chief Economist of the United States Senate Committee on Banking, Housing, This article is part of "Political Week at CoinDesk."
Private banknotes have been widely used as a means of exchange for much of the history of the United States. Before the Federal Reserve was created in 1913, banks issued refundable notes for an amount equal to an asset, typically gold. Even after the gold standard came to an end in 1933, notes issued by national banks continued to circulate, decreasing to about $20 million in circulation in 1970.
It is common practice in many countries today to issue private banknotes. In Hong Kong, Scotland and Northern Ireland, for example, the private banks issue banknotes which can be exchanged for their local currencies. Private bank-issued currency is legal in dozens of countries around the world.
See also: What Is a Stablecoin?
E-banknotes are a modern analogue of paper banknotes. Stablecoins are crypto tokens the value of which is linked to another asset, like the US dollar. The total market value of the top four U.S. dollar-linked stablecoins is currently around $135 billion, which although quite large, is modest compared to the U.S. monetary base of about $5.4 trillion.
Most assets can be redeemed on request, as can deposits in a bank or savings account. Tether (USDT), the highest stability per market cap, promises to be redeemable in USD. Some stablecoins, such as the dai (DAI) token, require more than 100% collateralization to help ensure token holders’ funds are secure even if the collateral value falls.
Legal authority
In 2001, US Treasury Department economist Kurt Schuler found that the issuance of private notes is technically legal in the USA. The State Ticket Tax, which did prohibit this practice, was abolished in 1976. Laws prohibiting issuance by national chartered banks were repealed in 1994, although a semi-annual tax (totalling 1% annually on the value of banknotes in circulation) would continue to apply.
If Schuler is right, there is currently no legislation or regulation restricting the issue of private notes. A white paper from the Clearing House, a bank association, supports this view, noting that stablecoin-related activities “clearly fall within the existing legal authority of banks.” In addition, they write, "no legislative change is necessary to allow banks to issue digitized deposits" as stablecoins. In 2012, I calculated that U.S. banks could earn billions in profits by issuing their own private notes.
For the purposes of the regulations, repayable amounts would likely be treated as banknotes or other non-interest bearing liabilities. They would not be subject to reserve requirements, which apply only to transaction accounts and were lowered to zero in 2020. Prior to 1994, national banknotes were required to be fully collateralised.
Bank-issued stablecoins would also not be subject to insurance from the Federal Deposit Insurance Corporation (FDIC), which applies only to specific types of accounts, such as checking and savings accounts.
Stability payments issued by banks would also not be subject to the insurance of the Federal Deposit Insurance Corporation (FDIC), which only applies to certain types of accounts, such as chequing and savings accounts. States such as New York have deterred the crypto industry with restrictive regulatory regimes, but others including Wyoming have welcomed cryptocurrencies, and might provide a regulatory environment amenable to stablecoins.
States such as New York have discouraged the crypto industry through restrictive regulatory regimes. Others, including Wyoming, have welcomed cryptocurrencies, and could provide an enabling regulatory environment for stability. Another issue is whether anti-money laundering (AML) legislation, such as the KYC requirements, would apply to bank-issued firearms. Some could argue that holding a stableoin is like having a bank deposit. A closer comparison is made with personal or cash cheques, which only require the auditor to have an account at the issuing bank.
Signed cheques can be forwarded to other purchasers.
The AML and KYC laws do not apply to intermediary cheque holders, but only to the cheque writer and, where applicable, the purchaser.
Knives should also be covered by this standard. The Clearing House White Paper points out other areas where compliance may be necessary, such as Personnel Accounting Bulletin 121. Any that would prohibit the issuance of a stability certificate.
Prior legislative proposals sought to clarify the legal requirements for issuing stablecoins. Sen. Bill Hagerty’s Stablecoin Transparency Act, Sen. Pat Toomey’s Stablecoin TRUST Act and the Responsible Financial Innovation Act by Sens. However, regulatory amendments aimed specifically at modifying the treatment of stabilization commitments may require the creation of new rules as part of the formal notice and comment process, which often takes years.
See also: The Niche Application of Stablecoins Is Not a Bad Thing / Opinion
Sen. Bill Hagerty Stability Act, Sen. Pat Toome's Stability Trust.
Fiscal Innovation Act and Responsible Direction Act. Both Cynthia Lummis and Kirsten Gillibrand allegedly demanded that the certificates issued by the deposit-taking institutions be fully guaranteed and repayable in US dollars. See also: Applying stablecoins windows is not a bad thing/ Opinion. Although it can be a good policy to require stable assets to be backed with cash, Future proposals should recognise the existing legal status of the issuance of stability certificates, instead of creating unnecessary or duplicative emission regimes.
