Yellen’s comments came in the wake of a new report from the President’s Working Group on Financial Markets (PWG), which was released in conjunction with the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corporation (FDIC).
According to information from the U.S. Department of the Treasury, stablecoins are often used to facilitate the trading of other cryptocurrencies, but could have broader use as a way to facilitate payments in both businesses and households. “Stablecoins that are well-designed and subject to appropriate oversight have the potential to support beneficial payments options. But the absence of appropriate oversight presents risks to users and the broader system,” Yellen said in a statement. “Current oversight is inconsistent and fragmented, with some stablecoins effectively falling outside the regulatory perimeter.”
According to CoinMarketCap, the top stablecoins by market capitalization as of press time are Tether, USD Coin, Binance USD, Dai and TerraUSD.
Increasing the use of stablecoins as a form of payment, if unchecked, could wreak havoc on the entire payment space, according to the Treasury’s office. The PWG report was designed to highlight where gaps in regulation and oversight could become problematic and offer some ways to fill those gaps.
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“Treasury and the agencies involved in this report look forward to working with Members of Congress from both parties on this issue. While Congress considers action, regulators will continue to operate within their mandates to address the risks of these assets,” Yellen added.
To that end, the PWG report recommends swift legislation to ensure stablecoins and their associated transactions are governed by a comprehensive and consistent framework. That legislation would serve as a complement to existing guidelines and regulation aimed at investor protection, market integrity and illegal finance.
Among some of the specific suggestions from the group include requiring those who issue the coins to become insured through depository institutions, requiring wallet providers to submit to appropriate federal oversights, requiring entities facilitating stablecoin transactions to “meet appropriate risk-management standards” and requiring issuers to comply with restrictions limiting affiliations with commercial entities.
“While the scope of this report is limited to stablecoins, work on digital assets and other innovations related to cryptographic and distributed ledger technology is ongoing throughout the Administration,” according to the Treasury. “The Administration and the financial regulatory agencies will continue to collaborate closely on ways to foster responsible financial innovation, promote consistent regulatory approaches, and identify and address potential risks that arise from such innovation.”