Federal Reserve Accused of Hampering Stablecoin Regulatory Efforts

The U.S. Federal Reserve is facing accusations of obstructing congressional attempts to implement stablecoin regulations. This claim was made evident in a recent letter addressed to Jerome Powell, the Fed Chairman. The communication was jointly penned by the Chairman of the U.S. House Financial Services Committee, Patrick McHenry, along with subcommittee chairs French Hill and Bill Huizenga.

The congress members expressed their reservations about two particular correspondences from the Federal Reserve: SR 23-7 regarding the Novel Activities Supervision Program and SR 23-8, which pertains to the “Supervisory Nonobjection Process for State Member Banks Intending to Engage in Activities Relating to Dollar Tokens.” The essence of their message was:

“These actions appear to hinder the advancements Congress has achieved towards shaping a regulatory framework for payment stablecoins. Furthermore, these correspondences, if not revisited, could potentially discourage financial establishments from delving into the digital currency sphere.”

These letters, which were sent out concurrently, act as a follow-up to a policy statement from January, introducing further curbs related to cryptocurrency dealings.

The legislators argue that these letters from the Fed “essentially bar banks from rolling out payment stablecoins or becoming part of the payment stablecoin system”, even though they’re presented as mere guidelines that describe the circumstances under which such activities might be approved. This January directive broadened constraints previously set by the Office of the Comptroller of the Currency, extending them from national banks to encompass state banks.

Furthermore, they pointed out that the Fed’s letters didn’t adhere to the necessary notice and feedback procedures stipulated by the Administrative Procedure Act.

This ongoing debate revolves around the “Clarity for Payment Stablecoins Act of 2023,” a piece of legislation put forward by McHenry on July 20.

To shed more light on the issue, the committee members posed eight primary questions, most of which delve into the practical application of the guidelines presented in the two aforementioned Fed letters. Additionally, they sought documentation to piece together the chronology behind the composition of these controversial letters.