- Senators Cynthia Lummis and Kirsten Gillibrand propose the Lummis-Gillibrand Payments Stablecoin Act.
- The legislation establishes regulations for payment stablecoins, prioritizing consumer protection and the dual banking system.
- The act focuses on reserve requirements, operational guidelines, and customer safeguards to enhance stability and promote the US dollar’s dominance.
US senators Cynthia Lummis and Kirsten Gillibrand have joined forces to introduce a groundbreaking bipartisan legislation known as the Lummis-Gillibrand Payments Stablecoin Act. The primary objective of this proposed law is to establish a clear regulatory framework for payment stablecoins in the United States, while prioritizing consumer protection, innovation, and the preservation of the dual banking system. With these aims in mind, the senators aim to address the growing prominence of stablecoins and ensure the dominance of the US dollar in the digital asset landscape.
The Need for Regulatory Clarity
Stablecoins, such as Tether’s USDT and Circle’s USDC, have witnessed a significant surge in popularity within the crypto market. These digital assets are increasingly being utilized for payments and transactions. However, concerns have been raised about their potential misuse, including their exploitation by foreign entities seeking to bypass economic sanctions. In response to these challenges, Senators Lummis and Gillibrand have crafted a comprehensive bill that focuses on establishing an operational framework for stablecoins within the United States.
Key Provisions of the Lummis-Gillibrand Payments Stablecoin Act
The proposed legislation takes a targeted approach, addressing specific operational aspects of stablecoin issuance. It introduces stringent reserve requirements for issuers and outlines operational guidelines to ensure stability and security within the stablecoin ecosystem.
Registration and Authorization
Under the bill, stablecoin issuers must either be non-depository trust institutions registered with the Federal Reserve Board of Governors or depository institutions authorized for stablecoin issuance. Financial institutions seeking entry into the stablecoin market must create dedicated subsidiaries for this purpose, ensuring focused oversight and regulatory compliance.
Full Dollar Backing
To enhance stability and bolster investor confidence, registered stablecoin issuers will be required to maintain full dollar backing for their stablecoins. This provision effectively restricts the use of algorithmic stablecoins, which rely on complex algorithms to maintain their value. By mandating a one-to-one reserve ratio, the bill aims to mitigate potential risks associated with unstable collateralization.
Limit on Issuance and National Payment Stablecoin Authorization
The legislation sets a cap on the issuance of stablecoins by non-depository trust companies, limiting it to $10 billion. Beyond this threshold, institutions must obtain authorization as national payment stablecoin issuers. This measure ensures that stablecoins do not grow beyond manageable levels and strengthens regulatory oversight as they scale.
Safeguarding Customer Funds
The bill incorporates a “receivership regime” in collaboration with the Federal Deposit Insurance Corporation (FDIC). This regime establishes a clear order of priority, ensures the validity of claims, and classifies payment stablecoins as customer assets rather than the property of the issuer. These provisions contribute to customer confidence by enhancing the security and protection of their funds.
Compliance with Regulations
Recognizing the importance of combating money laundering and adhering to sanctions rules, the proposed legislation mandates that stablecoin issuers comply with US anti-money laundering and sanctions regulations. By enforcing these requirements, the senators aim to prevent illicit finance and safeguard the integrity of the financial system.
Conclusion
The introduction of the Lummis-Gillibrand Payments Stablecoin Act marks a significant step towards establishing a comprehensive regulatory framework for payment stablecoins in the United States. By prioritizing consumer protection, fostering innovation, and preserving the dual banking system, Senators Cynthia Lummis and Kirsten Gillibrand aim to strike a balance that supports the growth of stablecoins while mitigating potential risks. The proposed legislation’s focus on reserve requirements, operational guidelines, and customer safeguards is designed to instill confidence in the stablecoin ecosystem, promote the dominance of the US dollar, and ensure the continued evolution of the digital asset landscape in a secure and regulated manner.
Disclaimer
The information provided in this article is for informational purposes only and should not be considered financial advice. The article does not offer sufficient information to make investment decisions, nor does it constitute an offer, recommendation, or solicitation to buy or sell any financial instrument. The content is opinion of the author and does not reflect any view or suggestion or any kind of advise from CryptoNewsBytes.com. The author declares he does not hold any of the above mentioned tokens or received any incentive from any company.
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