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Summary
- U.S. Treasury Secretary Janet Yellen to discuss the role of stablecoins in the financial systems with the U.S. regulatory authorities.
- Stablecoins are also digital currencies but less volatile and their values are pegged to the S. dollar
- Regulators are concerned about the transparency of stablecoins and reserves backing them
The regulators around the world are becoming serious about the role of stablecoins in financial system. The Treasury Secretary Janet Yellen along with the U.S. Government’s Working Group on Financial Markets will be discussing the role of stable coins this week.
A Few days back even Jerome Powell, the Chairman of FED had said that the stablecoins need to be evaluated and operate under an appropriate framework.
The meeting to be held on Monday will be high powered one and will include representatives from the office of Comptroller of the Currency and the Federal Deposit Insurance Corporation.
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What are stable coins?
Stablecoins were created as a type of cryptocurrency that keep their values constant and are linked to fiat. Their linking to fiat is in the ratio of 1:1. This is a part of the cryptocurrencies that represents some consistency and reliability. However, there are certain risks related to stablecoins. The biggest issue is with regard to whether these coins are actually backed by fiat currency corresponding to the coins market value.
The problem with stablecoins
The main problem of the stablecoins has come to the fore due to Tether which released a report about its cash reserves this year. Tether assured its investors that it had sufficient capital and assets, but New York Attorney General conducted an investigation and found the ways in which Tether management had lied to the public. Since then, the stablecoins have come under the scanner.
Even the Bank of England has been asking for a system whereby the stablecoins are monitored more closely. Bank of England President, Andrew Bailey had claimed that stablecoins had caused many issues as a result of their lack of regulation.
Also Read: Bank of England Governor’s Crypto Warning – Be Prepared to Lose All Your Money
The lack of regulation means that the investors are unprotected and not sure about the existence of cash reserves. It is important that the stable coins if a useful digital currency should be regulated and transparent to some extent is what the regulators are wanting to achieve.
Also Read: Just How Tethered is Tether?
In fact, as the crypto currencies continue to grow, the stablecoins will be subject to the same scrutiny as the other non-digital financial institutions. There is no doubt that stablecoins have a vital role in the cryptocurrency space. For instance, if someone wants to buy with crypto certain goods and services, he can do so with stablecoins without worrying whether it will crash next moment or not. Also, since it is tied to the U.S. dollar, it can facilitate crypto to crypto transfer.
Also Read: Is the wild ride still on for these five cryptocurrencies?
What will the U.S. based regulators discuss?
So the coming together of the U.S regulators on Monday will discuss the uses of stablecoins and how to minimize their risks to the investors, markets and financial system. Janet Yellen said on Friday that since the digital assets were growing very fast, it was important to put a regulatory mechanism to put in place.
She said the main concerns of the regulators with regard to the stablecoins is transparency in trading, the reserves backing them. She also said that they are growing in popularity and interest. Slowly Companies are beginning to accept payments in the dollar backed stablecoins.
Also, as more companies with cryptocurrency businesses go public, there needs to be a regulatory framework in place and the investors need to be clear on how to deal with them.
