The U.S. House of Representatives has approved a new stablecoin regulation law that would make it easier for banks and other financial institutions to issue stablecoins.
The bill also sets clear guidelines for consumers and distributors.
The law marks the U.S. government’s most significant step yet into the crypto space and has drawn global attention. With Washington leading the way, other countries — including Canada — are now facing pressure to accelerate their own plans for regulating digital currencies.
Stablecoins are a sort of cryptocurrency that tries to keep its value steady by linking its price to a conventional asset like the U.S. dollar, the euro, or even gold. Stablecoins are different from other cryptocurrencies like Bitcoin and Ethereum since their values don’t change much from day to day. This makes them far more helpful for regular transactions and financial activities.
People frequently think of regular cryptocurrencies as risky investments, while stablecoins are more like digital dollars. They connect the fast-paced crypto market with the stable traditional banking system.
According to Paul Pincente, vice president of digital assets at Purpose Investments, “Stablecoins were invented as a way to keep value or wealth within the crypto ecosystem but be protected from the volatility swings of cryptocurrencies like Bitcoin.”
The Guiding and Establishing National Innovation for U.S. Stablecoins — also known as the Genius Act — allows banks, fintechs and credit unions to attain licenses permitting them to distribute or issue stablecoins. According to Pincente, the new regulations give much-needed clarity to companies while also providing the security that was missing from the cryptocurrency ecosystem.
“It’s a huge step forward because, generally speaking, for companies that were working in the U.S. industry, there wasn’t much clarity into what they could or couldn’t do,” he said. “Ultimately, (the law) just sets the rules of engagement.”
The new stablecoin regulation law might have big impacts on the economy throughout the world. The rule basically fosters demand for government debt by making issuers back their tokens with secure, liquid assets like U.S. dollars and Treasury bills. This might lower the borrowing costs and deepen liquidity in the treasury market.
At the same hand, creating explicit standards for stablecoins might make more people and companies want to use them, as they could see them as a quicker and cheaper way to pay than other alternatives.
It also makes the U.S. a leader in digital finance across the world. The rules make the U.S. currency even more powerful in a digital world that is becoming bigger.
The U.S. government’s decision to make stablecoins legal might have an effect on Canada’s financial industry and how it regulates things. As U.S. banks start to provide regulated stablecoins, Canadians may be able to get these digital assets indirectly via platforms that let people from different countries trade with one other.
Canada is working on drafting its own stablecoin regulation law. The Office of the Superintendent of Financial Institutions (OSFI), the Department of Finance, and the Bank of Canada are all working on a full national framework that will encompass things like issuer licensing, reserve regulations, redemption rights, consumer protection, and direct monitoring. This is an extension of prior rules that treated banks’ stablecoin holdings like other crypto assets.
Paul Pincente thinks that a strong stablecoin linked to the Canadian Dollar might assist improve the infrastructure for digital assets in Canada.
“If you think more about the infrastructure around it, what are these assets, how they can facilitate easier transfers, how they can democratize access to financial services for people that typically are underserved, it’s the next step to take,” he said.