In the face of continued rapid growth as well as a broad crypto market correction, the time is now for U.S. policymakers to act. Delivering a bill to the White House that simultaneously addresses the clear risks that have emerged with stablecoins, while establishing clear rules of the road such that the U.S. dollar continues to be the leading digital currency of the internet can advance U.S. leadership and economic competitiveness.
In many ways, the broad crypto market correction vindicates policymakers and regulators who have been sounding alarm bells about excess risk and correlation with emerging crypto asset markets - even if fast growing algorithmic stablecoins were largely overlooked, despite warnings. Since 2019, much of this focus and concern has been placed on stablecoins, which is a catchall term denoting many variants of asset referenced cryptographic tokens purporting to afford economic stability, thus being usable as an efficient medium of exchange. At the same time, the crypto correction, amid broader economic turmoil and risk-off behavior in capital markets, also vindicates companies that have prioritized a regulation first approach, and worked to build deeper levels of trust, transparency and accountability when compared to other market actors.
For the past two decades, electronic money, payments and broader fintech innovations have been regulated in the U.S. under Money Services Business and Money Transmission statutes. This is an approach the U.S. Department of the Treasury has embraced for crypto assets nearly ten years ago with the introduction of FinCEN’s guidance for firms acting as a bridge between the existing banking system and digital assets. With digital currencies now being adopted globally as an internet-native medium of exchange, competition for the currency of the internet has now been amplified as a geopolitical and geoeconomic issue. Some are framing this as a digital currency space race, while others are arguing that the U.S. has the opportunity to lead the way, leveling the playing field amid intense international competition. As the Biden Administration’s Executive Order works its way through a whole-of-government review, there is no greater testament to national unity of purpose than for Congress to act in a pro-innovation, bipartisan way on the President's Working Group on Financial Markets’ (PWG) call to action on stablecoin policy.
In this spirit, the following policy principles reflect Circle’s real-world experience operating the world’s leading regulated dollar digital currency, USD Coin (USDC), which stands at more than $54 billion in circulation. USDC has safely powered more than $5 trillion in on-chain transactions and is available through a global network of thousands of digital wallets, exchanges and other products and services in more than 190 countries, lowering the fundamental cost of payments and financial services and establishing dollar payments utility as a native feature of the internet.
Circle’s Policy Principles
- To the right of lawful and consistent with democratic values, the use of money should be free, irrespective of its form factor.
- A dollar digital currency (or payment stablecoin or digital cash) is a digital bearer instrument entitling the holder to redemption at par for one U.S. dollar, even in the event of the issuer's bankruptcy.
- The presumption and preservation of privacy should be enshrined as a design principle in the issuance and circulation of dollar digital currencies.
- Transparency, accountability and harmonized risk disclosures are essential preconditions of market trust and consumer protection.
- The preservation of bank and non-bank dollar digital currency issuance promotes competition, a level playing field, and rules-based upgrades in the financial system. Bank-like risks should be addressed with scale-appropriate bank grade levels, including asset liability management, operational and enterprise risk management considerations.
- Dollar digital currency innovations are about optionality in the payments and banking system and not substitution. As such, their harmonized regulation and promotion should expand new forms of financial access through composable and programmable digital currency innovations, while promoting safe integration with existing systems of electronic money and financial markets infrastructure.
- The promotion of interoperability, fungibility and universal exchange of comparably regulated and reserved dollar digital currencies among and between regulated intermediaries promotes competition, lowers barriers to entry and increases market choice. Stablecoin statutes should promote the development of supervisory, risk and operational frameworks for multiple issuers of the same stablecoin standard.
- The promotion of financial equity, inclusion and broader societal participation in lower cost payments, device-centric banking and trusted, always-on financial services can be a net benefit for historically marginalized communities. This must include a digital corollary to the Community Reinvestment Act (CRA), widening the net of participation to include community banks, minority depository institutions (MDIs) and credit unions in deposit taking, asset management and digital transformation efforts.
- The protection, application and collective defense of all applicable and appropriate financial integrity norms, including anti-money laundering (AML), countering the financing of terrorism (CFT), sanctions requirements and, know your customer (KYC) standards, should be universally applied. This should be done in ways that advance national and global security, while upholding democratic values and embracing new innovations in digital identity and credential verification that simultaneously preserve privacy while enhancing financial integrity.
- The application of safety, soundness and risk-adjusted prudential standards should be adopted, including in the strict adherence to cash and dollar-backed asset composition, maturity, weighting, liquidity and custody, including where appropriate, the promotion of direct custody at the Federal Reserve.
- Dollar digital currencies should be intermediated and responsive to monetary policy and its transmission, which is a sovereign activity that is conveyed through the intermediated, well-regulated and rules-based financial system designed to preserve global trust in the U.S. dollar. This includes applicable financial stability objectives, which should preclude dollar digital currency issuers from formulating monetary policy or calibration frameworks that may be in conflict with central banking and prudential regulatory norms.
Dollar digital currencies provide different functionality from and can co-exist with central bank digital currencies (CBDCs). Policymaking should ensure an even playing field, robust competition and scalability, with careful consideration of technological and operational risk, while preserving the two-tier banking and payment system.
- As a digital bearer instrument, dollar digital currencies should at all times remain backed 1:1 by equivalent dollar-backed high quality liquid assets (HQLAs) in the care, custody and control of well-regulated financial institutions and banks in a bankruptcy remote manner.
- Dollar digital currencies should promote responsible financial services innovation and trusted forms of always-on banking and payments through the use of open, internet-scale, constantly upgradable financial markets infrastructure. This combats technological obsolescence in financial infrastructure, improves cyber resilience and security and promotes domestic and global competitiveness through payment system optionality.
Harmonizing national regulatory and policy frameworks for dollar digital currencies advances U.S. economic competitiveness, job creation and payment system optionality, while averting a harmful domestic “fintech constitutional crisis,” and global regulatory arbitrage. With the passage of Europe’s Markets in Crypto-Assets Framework (MiCA), which will be to crypto-assets what GDPR was to privacy, U.S. leadership is needed to avoid trans-Atlantic or global misalignment, while harmonizing standards for stablecoins.
The promotion, development and standardization of digital identity and credential verification standards are critical companion solutions for more inclusive, privacy-preserving dollar digital currency innovations that advance in lockstep with financial integrity.
- Public private partnerships that employ dollar digital currencies, open financial markets infrastructure, digital wallets, decentralized identity standards and related services can advance policy through practice and the provision of digital public goods - while upgrading national, open technological infrastructure.
- The promotion of fair market practices and the adoption of a “stablecoin Glass-Steagall Act” can help to guard against manipulative market conduct and concentration that could erode trust, trigger systemic risks and imperil market participants and consumers to financial loss.
- Dollar digital currencies should be treated as cash or cash-equivalents under U.S. and globally accepted accounting principles to promote clarity for market participants and consistency across international standard setting bodies. Such standardization will give households, firms and financial institutions confidence in integrating and using dollar digital currencies in everyday transactions.