Congress should regulate stablecoins, Biden administration report

Stablecoins, a popular type of digital asset pegged to traditional currencies, could transform the way Americans pay for everything from cell phones and gasoline, to haircuts and cups of coffee, according to a long-awaited report released by the Biden administration.

When regulated, stablecoins could “support faster, more efficient, and more inclusive payments options,” said the President’s Working Group on Financial Markets, which includes several top economic advisors to President Joe Biden.

“Moreover,” the report reads, “the transition to broader use of stablecoins as a means of payment could occur rapidly due to network effects or relationships between stablecoins and existing user bases or platforms.”

Still, Biden’s economic advisors said Congress must introduce regulatory oversight and formal market structure as soon as possible to both protect and inform investors, issuers and exchanges.

Specifically, the Biden team recommended Congress pass legislation that limits stablecoin issuance to insured banks, a move that would give regulators far greater jurisdiction over the industry.

Senior administration officials told CNBC that their report focuses on risks, but that the nation’s top regulators think stablecoins offer a compelling digital payments option that needs far more oversight from lawmakers.

Unlike their volatile crypto cousins, the $130 billion stablecoin market is prized in large part thanks to their steady valuation and link to national currencies. This steadiness has made them a growing source of liquidity in cryptocurrency markets around the globe. They are used by traders and investors to buy and sell other assets or as a safe place to park wealth.

In that sense, stablecoins are more a medium of exchange and store of value like a traditional fiat currency. It also sets them apart from crypto securities like bitcoin, which investors often see as a source of capital appreciation and potential market returns.

Like other digital assets, stablecoins need to be monitored to make sure they aren’t bankrolling criminal activities, Securities and Exchange Commission Chairman Gary Gensler said in a press release that was also released Monday. Gensler is a member of the President’s Working Group on Financial Markets.

“The use of stablecoins presents a number of public policy challenges with respect to protecting investors,” he said. “Further, stablecoins may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money laundering, tax compliance, sanctions, and other safeguards against illicit activity.”

The administration said it spoke with several key players in the crypto industry in drafting its analysis, including payments platforms Visa, Mastercard and Square, as well…