Stablecoin Legislation Advances in Congress
On Wednesday, a bill focused on stablecoins, known as the STABLE Act, progressed through the House Financial Services Committee, indicating a greater chance that Congress will enact legislation this year that solidifies stablecoins’ role in the global financial system. Advocates for the bill argue that stablecoins can help the United States maintain the dollar’s central position in international finance while enabling individuals around the world to engage in transactions that are more efficient, affordable, and secure. Despite the bipartisan support for stablecoin regulation, the initiative has encountered resistance, particularly from Democrats who are raising concerns about potential systemic risks and conflicts of interest—especially following the announcement of a new stablecoin by the Trump family’s associated crypto company. Detractors also highlight a significant issue: the legislation might pave the way for major technology companies such as Meta, X, and Amazon to establish their own forms of currency, thereby amplifying corporate influence.
Potential Impact of the STABLE Act
Both the House and Senate have successfully moved their respective stablecoin bills—the STABLE Act and the GENIUS Act—through committee stages. These bills outline the framework for the regulation of stablecoins and specify the requisite reserves that issuers must maintain. The next step involves reconciling the two bills so that a unified version can be presented to President Trump by summer. Several financial institutions, including Bank of America, have shown interest in launching their own stablecoins if the legislation is passed. However, the current versions of the bills permit non-financial entities to issue stablecoins through subsidiaries, a shift from earlier proposals that restricted such actions to banking institutions. Notably, the STABLE Act allows any non-bank organization to issue a stablecoin with the approval of a federal regulator.
Big Tech’s Role in the Future of Stablecoins
Hilary Allen, a law professor at American University, warns that this regulatory environment could enable influential tech figures like Elon Musk and Mark Zuckerberg to launch their own stablecoins. Both have previously expressed interest in the financial sector—Musk’s company X has obtained money transmitter licenses in various states, while Facebook attempted to introduce its cryptocurrency, Libra, in 2019 but faced backlash and regulatory challenges. Allen explains that major tech companies are keen on payment systems due to their potential to collect and monetize valuable consumer data. As transactions shift to these platforms, it could significantly bolster the already substantial power these companies hold over the economy.
Concerns Over Financial Stability
Allen outlines a scenario in which Amazon could issue its own stablecoins, potentially leading to widespread adoption among its customers, employees, and even subscribers to affiliated services like Whole Foods and the Washington Post. This shift could result in individuals relying on Amazon’s stablecoins rather than traditional bank accounts. “This would be detrimental,” Allen asserts, “because banks utilize deposited funds to stimulate economic growth through loans, whereas stablecoin reserves would simply remain stagnant.” Massachusetts Democrat Stephen Lynch echoed these concerns during the markup session for the STABLE Act, cautioning that stablecoins could undermine banks’ ability to lend to consumers and small businesses.
Regulatory Risks and Consumer Protection
In October 2023, Rohit Chopra, the director of the Consumer Financial Protection Bureau under the Biden administration, warned that if large tech firms gained control over banking activities, they would have strong motivations to monitor all aspects of consumer transactions and could implement personalized pricing strategies. Arthur Wilmarth, a professor emeritus at George Washington University Law School, noted that using stablecoins for purchases may expose consumers to fraud risks. He draws parallels with China, where Tencent and Alibaba have dominated the payment landscape and gained excessive leverage over regulators, prompting the government to impose stricter controls on these corporations.
Debate Over Banking and Commerce Separation
During Wednesday’s markup, Rep. Maxine Waters advocated for an amendment aimed at preserving the separation between commerce and banking, arguing that the current bill could facilitate the creation of proprietary currencies by figures like Elon Musk and corporations like Walmart. In response, Wisconsin Republican Bryan Steil, a co-sponsor of the bill, argued that such an amendment would stifle innovation. Co-writer French Hill, the House Financial Services Committee Chair, expressed hope that Congress could find a “thoughtful solution” to Waters’ issues while also considering broader legislation regarding the cryptocurrency market. Ultimately, the proposed amendment was rejected. Wilmarth expressed concern, stating, “I see this stablecoin legislation as a significant risk that could allow big tech to deeply penetrate the banking sector. Once that occurs, reversing course will be nearly impossible.”
