The monetary policy expert says the SEC is currently taking a hard line on stable coins – but only if it can allow them to be issued. Currency News | Financial and business news.
- If the SEC becomes a regulator despite its tough stance on cryptocurrencies, the range of stable coin issuers could widen.
- A senior county analyst said a battle was raging between the SEC and the Federal Reserve over which stable coins would be monitored.
- If the Fed wins, the big banks will benefit from issuing stable coins, Jarrett Seiberg said in a note.
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The Securities and Exchange Commission is currently taking a hard line on stable coins – but if it stops regulating corrupt assets-driven currencies, it could mean that there is too much range in offering these coins. ۔
This is the view of Jarrett Seiberg, a DC-based financial services policy analyst in Cowan, who noted that the government agency is a fierce competitor for oversight roles.
“We see a battle going on between the Federal Reserve and the SEC over which stable coins will be controlled,” Seiberg said in a note this week.
The rise in the popularity of corrupt assets over the past year has trained regulators to look at potential risks to investors and the financial system.
Gary Jensler, chairman of the SEC, likened stable coins in casinos in the “Wild West” crypto market to “poker chips”. Stable coins are cryptocurrencies backed by fiat money such as the US dollar, or traditional assets that have a stable value.
Teacher and Circle, the two largest stable coins in terms of market capitalization, have recently taken regulatory heat, the SEC has issued an investigative statement to Circle this summer.
Gensler and Fed Chair Jerome Powell were among the top officials – including Treasury Secretary Janet Yellen – to discuss the teacher in July when he signaled the tightening of rules around stable coins.
The SEC boss said some stable coins could be securities. Meanwhile, the head of the Fed has said that stable coins are like money market funds, or bank deposits.
If the SEC wins the battle of oversight, it will deal with stable coins such as prime money market mutual funds, or MMMFs, which come with liquidity requirements and redemption limits.
“We believe that if the SEC prevails, there will be a greater diversity of stable coin issuers,” Seiberg said.
According to Cowan, the Fed will take a regulatory approach. Stablecoins will become another deposit product, including the usual bank rules and the responsibilities of the Community Reinvestment Act.
“If the Federal Reserve wins this battle, we expect the big banks to benefit when it comes to issuing stable coins,” Seiberg said.
The Biden administration appears to support the Fed’s approach, as it urges Congress to create a bank-like charter for stable coins. It has called on the Financial Stability Oversight Council to assess the risks associated with stabilizing the financial system.
Cowan expects the FSOC to consider stable coins to be “militarily important”, paving the way for the Fed to monitor them as banks do. Yellen is a key ally of the central bank, a former Fed boss who now chairs the FSOC.
“This is not the first power struggle between the two. They fought as umbrella regulators for financial firms in the 1990s. The Fed won this battle,” Seiberg said.
Cowan believes the SEC has the upper hand because market regulators are seen as the easiest way to bring in regulatory government.
“The FSOC process is cumbersome, and Congress rarely works,” Seiberg said of the Fed’s approach.
In contrast, the SEC treats stable coins as securities, and clears the way for rules such as money market mutual funds.
Whichever way it goes, according to Cowan, there is little real difference between the two regulatory governments for stable coins. Either confidence will increase.
“In our view, both options should reassure investors that the stable coin has the full support of the US dollar. It should limit the risk of escaping,” Seiberg said.
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