Regulations Can Help Stabilize Stablecoins, Preventing a Possible Run, OCC Says

On January 13, 2022, Michael J. Hsu (Acting Comptroller for the Currency of the United States) gave a speech in which he highlighted the benefits of regulating cryptocurrency, specifically stablecoins, as a way of providing security and peace of mind to users of this type of technology.

Hsu spoke at the BritishAmerican Transatlantic Finance Forum. He argued that the rapid growth of cryptocurrency had made it impossible to maintain the previous years’ regulatory indifference. Therefore, there was a need for a strong legal framework.

Hsu claimed that as people use cryptocurrencies to replace bank accounts and don’t see the need to send money to trusted third parties, regulators must pay more attention before it is too late.

Despite legal and regulatory uncertainty, a number of scams and hacks and other disruptive events, crypto mainstreaming has taken place. This raises many questions for financial regulators such as me. What should regulators be paying attention to? What should be done? Who should do it? Whom?

Stabilizing Stablecoins

The U.S. Comptroller for the Currency believes that regulation of stablecoins is not only necessary to combat crime but also serves to protect against latent dangers. The most obvious is a bank run.

Bank runs are panic episodes where a large number of depositors withdraw money from banks in fear that the institution might become insolvent. Banks cannot issue physical cash to all depositors in most cases because the bank’s business model means that their funds are not available for them.

Regulators can intervene in the case of traditional finance. They can’t do much about cryptocurrencies, especially decentralized ones. This is particularly true for stablecoins, which are often the gateway to cryptocurrencies for traditional investors. There is also the assurance that each stablecoin has an equivalent fiat value, so if this confidence is lost, a run could occur, which could severely impact the crypto community.

Bank regulation is an effective tool for reducing run risk. Bank regulation would make stablecoin holders feel as confident that these coins are as reliable as bank deposits and as “money good”. The reserves would still be available, supervised and inspected by bank supervisors, even if the tide were not to rise.

For context, USDT moves three times more daily than Bitcoin. So a run could have a devastating effect on the entire crypto industry in the unlikely event it happens. The regulation of stablecoins can theoretically ensure they are “stable”, so there is no need to panic.

The Strategic Matter of Crypto Regulations

In an effort to avoid another geopolitical danger, the United States has sought to increase its control over cryptocurrency in order to reduce the global leverage of the dollar.

Last year, PayPal’s CEO suggested that Bitcoin could be used as a financial weapon by China. Many politicians warned that cryptocurrencies could diminish the prominence of the dollar if they are not addressed quickly.

It is often argued that cryptocurrencies are used in criminal underworlds to justify tightening regulations.

The recent Infrastructure Act, proposed by Joe Biden, could also negatively impact the crypto industry. It has exaggerated and unfulfillable KYC requirements that could be applied to a variety of players. These could include wallets, exchanges, and decentralized protocols.

Jerome Powell also stated this week that the report about the digital dollar was available for presentation. This year could be crucial in defining U.S. regulatory policy in the field of cryptocurrency.

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Marla Brooks

Marla Brooks – Financial Analysis My name is Marla Brooks, and I am the mainstream behind the””  for the powerful and most delicate insights into the latest activities in the financial analysis category. I started my journey as an independent financial consultant. I had approximately nine years of experience in this field. I am free soul so; my passion for exploring the world has taken me to the nations across the globe and given me the chance to report for a portion of the best news associations. Currently, I am a full-time editor as experienced in finance and started to use my abilities.

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