On November 1, 2021, the President’s Working Group on Financial Markets (PWG)1—along with the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC)—published the Report on Stablecoins (Report),2 providing a wish list for future legislation regulating stablecoins used as a means of payment and recommending interim measures until legislation can be adopted. The Report could have an immediate impact on the way both federal and state regulators assess risk management issues, anti-money laundering (AML) and sanctions controls, reserve management, and the financial soundness and stability of stablecoin issuers even without legislative intervention.3
Stablecoins are blockchain-based cryptocurrencies pegged to an underlying asset (usually, but not always, a fiat currency like the US dollar or the Japanese yen). The Report asserts that today stablecoins are primarily used in the United States to facilitate the trading, lending and borrowing of other digital assets, but proponents believe that stablecoins could become widely used by households and businesses as a means of payment and cross-border remittances without exchange rate risks.4 While the Report acknowledges that “[i]f well-designed and appropriately regulated, stablecoins could support faster, more efficient, and more inclusive payments options,” it also notes a number of risks attendant with that eventuality.5 These risks include market integrity, investor protection, and illicit finance concerns, as well as a range of prudential concerns related to the increased use of stablecoins as a means of payment (i.e., payment stablecoins). In order to address the prudential risks related to payment stablecoins, the PWG, along with the FDIC and OCC, recommends that Congress act promptly to enact legislation to ensure that payment stablecoins and payment stablecoin arrangements are subject to a federal prudential framework on a consistent and comprehensive basis.