The Federal Reserve has committed to not issuing a central bank digital currency (CBDC), but the long-awaited “digital dollar” might take a different form. Christopher Waller, a Federal Reserve Governor known as the “Hawk King,” has proposed that U.S. banks should be allowed to issue stablecoins under a unified national regulatory framework.
Waller stated that stablecoins have the potential to “maintain and expand” the international dominance of the U.S. dollar, although their success will depend on robust commercial use cases and a coordinated set of rules.
In his speech at a conference in San Francisco, Waller mentioned: “The stablecoin market would benefit from a U.S. regulatory framework that directly, comprehensively, and rigorously addresses stablecoin risks. This framework should allow both non-banks and banks to issue regulated stablecoins and should consider the regulatory impact on the payment landscape.”
Waller also pointed out that stablecoins carry the risk of bank runs.
Stablecoins, or Stablecoins, are digital tokens designed to maintain a stable value. Issuers typically promise to hold liquid assets equivalent to the value of the issued tokens, such as U.S. dollars or Treasury bills. Stablecoins can be backed by any currency but are usually supported by the U.S. dollar.
In the cryptocurrency market, the two largest dollar-backed stablecoins by market capitalization are USDT and USDC.
According to Bloomberg, bipartisan U.S. senators have introduced a bill to provide a regulatory framework for stablecoins, including requirements to maintain one-to-one reserves and comply with anti-money laundering laws.
Currently, the U.S. House Financial Services Committee has released a draft of the bill.
Waller stated: “The emergence of different global stablecoin regulatory regimes could lead to domestic and international regulatory conflicts. This regulatory fragmentation could make it difficult for U.S. dollar stablecoin issuers to operate globally.”
Waller noted that state regulators have been “key players” in the development of the stablecoin market, with some states enacting laws or finalizing new regulations.
“There is a risk of conflicts between state regulations, which could prevent the use of the same stablecoin across all states and reduce the scalability of stablecoins,” he added.
Former U.S. House Speaker and Paradigm Policy Committee member Paul Ryan previously wrote that dollar-pegged stablecoins could alleviate the U.S. government’s debt crisis, as they provide significant demand for U.S. Treasury bonds.
Paul Ryan emphasized that the stablecoin market, already valued at $162 billion, has become a major source of demand for U.S. Treasury bonds.
He further stated that the role of stablecoins in maintaining the dollar’s dominance is more timely than ever, as they provide “cheap, reliable financing” for U.S. fiscal spending, potentially helping the dollar maintain its significant influence over the global financial system.
