Biden's Working Group on Stablecoins Wants to Pass the Crypto-Buck to Congress

President Biden's Working Group report on stablecoins outlines a bold plan of inaction and more of the same.

On Monday of this week the President's Working Group (PWG) on Finance Markets issued its regulatory and legislative recommendations specific to stablecoins. The PWG convened in July after various banking officials and politicians declared that stablecoins pose a "systemic risk" to economies around the world, including the U.S. economy.

What are stablecoins?

Stablecoins are cryptocurrencies that are pegged to non-blockchain physical assets such as fiat currencies, gold, commercial paper, or government bonds. The backing of an established resource, such as the U.S. dollar, on a 1:1 ratio with a given stablecoin is intended to alleviate the volatility typically associated with crypto. Stablecoins are mostly used as a crypto parking lot for profits after an asset disposition. Stablecoins help preserve crypto gains -- they can be used to earn interest while idling in an exchange wallet and provide liquidity for quick deployment for other assets purchases.

After three months of navel gazing, the PWG report didn't provide any new insights. Instead it parroted past comments that stablecoins have a lot of potential utility for consumers, but that utility has to operate under regulatory and legislative guidance. That's because the working group members said in their statement that they're worried about "destabilizing runs, disruptions in the payment system, and concentration of economic power."

The report also stated that stablecoins pose other potential risks including "investor protection, market integrity, and illicit finance concerns" -- as if last month's resignation of two Federal Reserve governors didn't already elevate those risks. They resigned due to possible ethics violations and conflicts of interest for securities trading while working for the federal government.

Politicians take definitive non-action

Regardless, the big recommendation from the PWG was to kick the stablecoin can down Pennsylvania Avenue to the U.S. Capitol and let Congress figure it out. The PWG added the guidance, "to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal framework on a consistent and comprehensive basis," which basically means treating stablecoin issuers like banks.

However, if Congress is slow to act then the PWG made another non-recommendation in its press release, stating that it would engage the Financial Stability Oversight Council (FSOC) to "consider steps available to it to address the risks outlined in this report." You may recall that the FSOC was the committee empaneled by former President Obama in 2010 to help navigate through the 2008 financial crisis.

Novel boomerang approach to policy making

The only issue with the PWG engaging the FSCO is that the current members of the PWG are all also on the FSCO. They include Treasury Secretary Janet Yellen, Federal Reserve Chair Jerome Powell, Chair of the Securities and Exchange Commission Gary Gensler, and Acting Chairman of the Commodity Futures Trading Commission Rostin Behnam.

So even if the PWG and Congress aren't able to address these issues, the PWG only needs to engage its other 11 bureaucratic buddies on the FSCO to finally get this done -- or not. For now, we continue our wait-and-see approach to stablecoin regulation in the U.S.