(Bloomberg) -- Treasury Secretary Janet Yellen will convene top U.S. financial-market and bank regulators on Monday to discuss rules for so-called stablecoins, a key part of the cryptocurrency market where government officials are increasingly fretting about a lack of oversight.
The meeting of the President’s Working Group on Financial Markets will “discuss interagency work on stablecoins,” the Treasury Department said in a statement Friday. In addition to the Treasury secretary, the working group is comprised of the heads of the Federal Reserve, Securities and Exchange Commission and Commodity Futures Trading Commission, and this session will also include two bank regulators: the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp.
“Bringing together regulators will enable us to assess the potential benefits of stablecoins while mitigating risks they could pose to users, markets, or the financial system,” Yellen said in the statement. “In light of the rapid growth in digital assets, it is important for the agencies to collaborate on the regulation of this sector and the development of any recommendations for new authorities.”
The working group “will examine the current regulation of stablecoins, identify risks, and develop recommendations for addressing those risks,” and expects to “issue written recommendations in the coming months,” the Treasury said.
Regulators are watching closely this new kind of cryptocurrency, in part because it could pose a threat to the U.S. dollar’s dominance and it also raises concerns about consumer protection. Similar to the other digital currencies, it’s essentially a string of code tracked and authenticated via an online ledger. But it has a crucial difference from Bitcoin and its ilk: Its value is pegged to a sovereign currency like the dollar, so it offers stability as well as privacy.
Should something go wrong, holders could find themselves empty-handed. That prospect places pressure on governments to come up with their own alternatives. Although the Fed has been studying the idea of a digital dollar since at least 2017, crucial details, including what role private institutions will play, remain unresolved.
The market value of U.S.-dollar-backed stablecoins has grown rapidly in the past year and surpassed $100 billion in May. The largest, called Tether, has faced scrutiny from regulators for not always having the backing that it has claimed to have.
The planned meeting follows comments by Fed Chair Jerome Powell this week warning that stablecoins lack needed regulatory oversight.
“They are like money funds, they’re like bank deposits and they’re growing incredibly fast but without appropriate regulation,” Powell said in answering questions before the Senate Banking Committee on Thursday. “And if we’re going to have something that looks just like a money market fund or a bank deposit or a narrow bank and it’s growing really fast, we really ought to have appropriate regulation. And today, we don’t.”
Fed officials including Boston Fed President Eric Rosengren have highlighted potential growing risks from stablecoins including Tether.
In December, the government warned firms behind stablecoins to tighten protections against money laundering. The Treasury and other agencies said at the time they should be used in a way that “effectively manages risk and maintains the stability of the U.S. domestic and international financial and monetary systems.”
©2021 Bloomberg L.P.