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Stablecoins Face US Scrutiny as House Lawmakers Craft Rules

(Bloomberg) — US lawmakers’ efforts to police stablecoins are gaining steam, with a key House committee preparing to consider a plan for imposing new rules as soon as next week.

Leaders of the House Financial Services Committee are eyeing July 27 to advance a bipartisan bill focused on the digital tokens, according to three people with knowledge of the proposal who asked not to be named discussing the panel’s plans. Maxine Waters, a California Democrat, and Patrick McHenry, a Republican from North Carolina, have said they’re working together to create guardrails for stablecoins, crypto assets that are typically designed to be pegged to the US dollar or other traditional currencies.

The current draft of the bill would mandate that stablecoin issuers maintain 100% reserves and bar them from lending stablecoins to customers, according to multiple people with knowledge of the bill text. Stablecoins would be known as “payment stablecoins” under the legislation, and bank and non-bank issuers would operate under the same regulations. The Federal Reserve would license any non-bank stablecoin issuers and would be responsible for monitoring those firms’ financial health, according to the people.

There would also be strict rules on the types of assets that can back stablecoins and a prohibition on commercial companies such as Walmart Inc. and Home Depot Inc., being issuers, one of the people said.

Policymakers have been increasingly focused on stablecoins, especially given the current turmoil in the crypto markets — most notably the collapse of the popular token TerraUSD in May. That coin, also known as UST, was supposed to maintain a 1-to-1 peg to the dollar through an algorithm and trading in a related token called Luna. The model was different from other stablecoins that purport to be backed by cash and similar assets.

While the lawmakers’ offices are nearing a deal, talks are continuing and changes to provisions and timing are still possible.

The staff of Democrats on the House Financial Services Committee was briefed on the stablecoin plans Tuesday, several people familiar with the matter said. The Democratic members themselves are expected to be briefed on Wednesday and Republican members will receive an overview on July 22, just days before the planned July 27 markup.

Rep. Andy Barr, a senior member of the panel, said it’s “totally an open question” whether he and his fellow Republicans will support the bill.

If the legislation does get through the Financial Services Committee and eventually passes the House, that would likely put pressure on the Senate to act as well.

Waters’ and McHenry’s offices did not return requests for comment.

The Treasury Department has been working with lawmakers to help them craft legislation to address potential risks, including runs on stablecoin issuers, that were laid out in a report last year.

“We’ve been engaged with Congress quite a bit,” Nellie Liang, the department’s undersecretary for domestic finance, said Monday at an event in Washington, DC.

(Adds additional bill details and comment from Republican lawmaker beginning in fourth paragraph.)

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