As a seasoned researcher with extensive experience in the field of financial regulation and digital assets, I find myself deeply concerned about the current state of stablecoins and their potential impact on our financial system. The report by the Financial Services Oversight Council (FSOC) echoes my own fears and highlights the pressing need for legislation to address this issue.
In simpler terms, the U.S. Financial Services Oversight Council is urging lawmakers to set guidelines on how digital currencies called stablecoins can be issued.
In its report dated December 6, 2024, the Financial Stability Oversight Council warned that stablecoins could potentially pose a greater risk to the U.S. financial system. The council argued that centrally issued stablecoins are susceptible to “panics” or “runs” if the risks associated with these digital coins are not properly managed by issuing firms.
As suggested by the report, stablecoins may pose a threat to financial stability due to their susceptibility to bank runs when effective risk management guidelines are lacking.
A significant issue arises from the fact that roughly 70% of all stablecoins in circulation are minted by Tether.
The Financial Stability Oversight Council (FSOC) hasn’t explicitly named particular entities, but they have pointed out that some companies dealing with stablecoins lack adequate risk management practices. Lately, Tether has faced public scrutiny due to a lack of providing proof that the coins it issued maintain a value equivalent to one U.S. dollar or its alternative assets.
The report underscores the point that numerous stablecoin providers operate without direct oversight from the federal administration. Instead, some fall under the purview of state-level authorities, while a significant number of these entities provide minimal transparency regarding their reserve details.
The Financial Stability Oversight Council (FSOC) recommended to Congress that they establish a comprehensive federal system for regulating stablecoin issuers. This system would grant the relevant federal agency control over the cryptocurrency market.
On previous occasions, the Financial Stability Oversight Council (FSOC) has proposed legislation, and this isn’t an exception. In their annual reports from 2023, they made similar suggestions. Currently, US legislators are pondering over the Payment Stablecoins Act, a bill designed to control stablecoin issuers. Despite not yet becoming law, supporters of the bill anticipate its passage during the incoming U.S. administration.
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2024-12-07 21:57