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US House stablecoin hearing focuses on competing bills for regulation

US House stablecoin hearing focuses on competing bills for regulation

State versus federal regulation was a key issue in the hearing on stablecoins in the United States House of Representatives on May 18. The House Committee on Financial Services’ new Subcommittee on Digital Assets, Financial Technology and Inclusion heard testimony from five experts as it considered two proposed bills to regulate stablecoins.

There were two draft bills under consideration by the subcommittee. The Republican bill was published in April ahead of a hearing on stablecoin in the Financial Services Committee. Ranking member Maxine Waters later introduced a competing draft based on a bill that was introduced but not passed in the last session of Congress.

The “race to the bottom” was the biggest point of disagreement on state-level stablecoin regulation. The Republican bill would allow stablecoin operators to choose the state they register in, without going through the Federal Reserve Board.

Supporters of the bill argue the floor would prevent the race to the bottom and mirror the U.S. two-tiered federal/state banking regulatory system. Democrats were unconvinced. The Democratic bill preserves access to regulation in federal hands, with the appropriate regulator. David Portilla, partner at Davis Polk & Wardwell, favored a middle road. He said:

“Federal regulation of stablecoin issuers would offer more uniform, consistent rules, whereas state regulation could promote more diversity and innovation in regulation and supervision. The answer to this question need not be binary.”

In any case, current regulations were not suited for stablecoins, he said. Besides a “floor” mechanism for federal involvement in stablecoin regulation for setting minimum standards, there could be a “toggle” based on the size of the issue, he said. The Republican bill would regulate all issuers identically, regardless of size.

Related: Congressional crypto hearing illustrates political stalemate on digital assets

National interest came up repeatedly, with Rep. Brad Sherman, an ardent opponent of cryptocurrency, claiming that a dollar-backed stablecoin would compete with the fiat dollar and undermine it, thus reducing the effectiveness of…

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