S&P predicts US Senate bill may pave the way for US banks to embrace stablecoins

A fresh bill has been introduced in the US Senate with the aim of revolutionizing the stablecoin market by potentially allowing US banks to issue stablecoins pegged to the US dollar. The Payment Stablecoin Act, which was introduced on 17 April, has attracted attention from both financial institutions and market observers. S&P Global Ratings released a research note on 23 April indicating that the bill could encourage banks to become more active in the stablecoin sector, potentially impacting non-US stablecoin issuers such as Tether, which currently has a market cap of $110bn. The bill proposes a $10bn limit on issuance by non-bank stablecoin firms and prohibits the issuance of “unbacked” algorithmic stablecoins. It also requires stablecoin issuers to maintain cash or cash-equivalent reserves in a one-to-one ratio. According to S&P Global Ratings, if the bill is passed and banking regulations are subsequently adjusted, banks could gain a competitive advantage. Institutions that do not hold a banking licence would be limited to issuing no more than $10bn in stablecoins, which could restrict the activities of large entities like Tether. Tether is the leading stablecoin by volume, but it is issued by a non-US entity and would not comply with the requirements of the proposed Payment Stablecoin Act. This non-compliance would prevent US entities from holding or transacting in Tether, potentially reducing its demand and benefiting stablecoins issued within the US. S&P Global Ratings noted that Tether’s transactions mainly occur outside the US and are largely driven by retail investors, remittances, and transactions in emerging economies. When introducing the bill last week, Democratic Senator Kirsten Gillibrand stressed the importance of establishing a regulatory framework for stablecoins to maintain the dominance of the US dollar, encourage responsible innovation, protect consumers, and crack down on money laundering and illicit finance. However, not everyone is pleased with the proposed changes outlined in the bill. Crypto advocacy organization Coin Center expressed concerns about the law, arguing that it would be “bad policy” to ban algorithmic stablecoins and that such a ban would violate the First Amendment.