Lawmakers and Industry Experts Discussed the Importance of US Dollar-Backed Stablecoins

The hearing addressed potential benefits stemming from stablecoins and criticized harmful traits of CBDCs.

Lawmakers and industry experts gathered on March 11 for a hearing to discuss the role of US dollar-backed stablecoins in the financial system and the need for a regulatory framework.

The hearing, titled “Navigating the Digital Payments Ecosystem: Examining a Federal Framework for Payment Stablecoins and Consequences of a U.S. Central Bank Digital Currency,” was convened by the US House Committee on Financial Services.

It also discussed concerns surrounding a potential central bank digital currency (CBDC) in the US.

Stablecoins vs. CBDCs

The hearing addressed the potential benefits stemming from stablecoins and criticized the harmful traits of CBDCs. House Financial Services Committee chairman French Hill argued that stablecoins offer advantages over a CBDC by fostering competition and innovation.

According to Hill:

“Unlike stablecoins, which operate in a competitive market, a CBDC would concentrate financial power within the federal government, restrict consumer choice, and undermine the innovation that has made US financial markets the strongest in the world.”

Hill further emphasized that when properly regulated, stablecoins can enhance US dollar dominance and modernize payment systems without excessive government control.

Representative Bill Huizenga (R-MI) echoed the potential of stablecoins, stating they could simplify the US payment system.

Additionally, Congressman Andy Barr (R-KY) highlighted that stablecoins are crucial in maintaining the US dollar’s status against competitors, including foreign CBDCs like the digital yuan.

Charles Cascarilla, CEO of Paxos, stated that a CBDC would not provide benefits that a stablecoin does not already offer.

“Historically, innovation in the U.S., both in the technology and in the financial system, has come from the private sector and that is what we should continue to embrace,” said Cascarilla.

Congressman Tom Emmer (R-MN) expressed his support for prohibiting CBDCs in the US, saying he is “grateful to President Donald Trump for understanding this” and signed an executive order banning them.

Emmer is referencing the order Trump signed on Jan. 23, establishing a framework to drive the growth of stablecoins. The order also directs federal agencies to cancel plans to create a CBDC.

Regulatory considerations

The hearing highlighted the growing consensus that stablecoins require a clear legal framework to ensure their stability and adoption without excessive government intervention.

Representative William Timmons (R-SC) expressed the priority of regulatory clarity, noting that digital asset innovators remain vulnerable to administrative actions that could drive innovation offshore without clear legislation.

The STABLE Act, which aims to regulate digital payment instruments like stablecoins, was a central topic of discussion. The bill proposes allowing both banks and nonbanks to issue stablecoins, with varying levels of supervision based on the amount of capital issued.

It also mandates that stablecoins be fully backed by US dollars or other specifically approved assets, guarantees the public enforcable redemption of stablecoins, and subjects issuers to varying degrees of supervision, similar to how banks are supervised.

Caroline Butler, global head of digital assets at BNY Mellon, emphasized the importance of the asset segregation framework outlined in the STABLE Act, stating that client assets should never be commingled with firm assets.

Cascarilla reinforced this point of view, arguing that legal protections for the reserve holding are paramount to sustaining a stablecoin’s value.

Randall Guynn, Chairman of Davis Polk & Wardwell’s Financial Institutions Group, noted that the STABLE Act’s requirements to ensure a stablecoin’s backing could make these assets a “no questions asked” type of money.

Carole House, a senior fellow at the Atlantic Council’s GeoEconomics Center, recognized the STABLE Act’s provisions for cybersecurity. She highlighted their importance in securing digital financial infrastructure, especially considering the increasing sophistication of cyber threats.

Stablecoins and financial inclusion

Beyond regulatory considerations, the hearing also touched upon the role of stablecoins in financial inclusion.

Cascarilla pointed out that stablecoins offer a means for unbanked individuals to access digital dollars through smartphone wallets. This, he said, would open up financial participation for the billions of people worldwide who lack traditional banking access.

Executives from large banks also highlighted a role for financial institutions in the stablecoin ecosystem. Butler stated that financial institutions could bring trust and confidence, and that they are needed to ensure stablecoin payment mechanisms evolve in parallel with traditional payment rails.