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Saturday, February 4, 2023

US Lawmakers Push for Urgent Stablecoin Regulation

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US Lawmakers Push for Urgent Stablecoin Regulation – The Financial Stability Oversight Council (FSOC) and the Federal Reserve Board have warned about the risks of stablecoin runs, which might jeopardize the country’s financial stability, as US politicians press for immediate regulation of stablecoins.

The terrausd (UST) fiasco was brought up by Treasury Secretary Janet Yellen as an example of why a strong regulatory framework is much needed.

In Washington, stablecoins have become a big subject. Following the terrausd (UST) debacle on Monday, US senators are pushing for immediate regulation of stablecoins.

During her hearing before the Senate Committee on Banking, Housing, and Urban Affairs on the Financial Stability Oversight Council Annual Report on Tuesday, US Treasury Secretary Janet Yellen mentioned UST as an example of a “stablecoin run.

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“Senator Pat Toomey requested Yellen to clarify her position on the necessity for stablecoin regulation. “I’d like to ask if you could confirm for the record here that you still believe it is critical, if not urgent, for Congress to approve laws managing the regulations of payment stablecoins,” he stated.

Yellen responded:

“Yes, Senator Toomey, I’m pleased to confirm that.”

“The president’s working group released a report indicating that present statutory and regulatory frameworks do not provide consistent and comprehensive requirements for the risks of stablecoins as a new type of payment instrument,” she continued.

The Treasury Secretary added, “I would urge bipartisan action to build such a framework.” We are looking forward to working with you.” She continued:

“This morning, the Wall Street Journal stated that the stablecoin terrausd UST had experienced a run and had lost value.”

Stablecoins may be exposed to run risks, according to the FSOC annual report. The report argues that “the potential for increased use of stablecoins as a method of payment raises a range of prudential issues.”

Stablecoin issuers may fail to honor a demand to redeem a stablecoin, or users may lose faith in a stablecoin issuer’s ability to execute such a request, resulting in harm to users and the wider financial system.

The Federal Reserve agrees with the FSOC on stablecoins. The Federal Reserve System’s Board of Governors issued its semi-annual Financial Stability Report on Monday, warning about the run risks of stablecoins.

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“Funding risks,” which “expose the financial system to the prospect that investors will ‘run’ by withdrawing their funds from a particular institution or industry,” according to the paper, are one of the dangers discussed.

Money market funds (MMFs) and stablecoins are still vulnerable to runs. Furthermore, “the stablecoin sector has continued to grow swiftly and is still vulnerable to liquidity risks,” according to the research.

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