American University Law Professor: Stablecoin Needs Federal Regulation to Prevent Financial Risks

Hilary Allen, a law professor at American University, noted that stablecoins pose a potential threat to the banking system and the public, and advocated for their regulation at the federal level. She warned that stablecoins could lead to bank instability and eventually require emergency government assistance. The comments come at a time when the U.S. Congress is ramping up its efforts to regulate stablecoins, even though a stablecoin bill has little chance of passing in a presidential election year. For his part, Marcelo M. Prates, an expert in financial policy and regulation, argued that stablecoins should be appropriately regulated, but emphasized their potential for development as electronic currencies that could help improve financial competitiveness, reduce costs, and promote financial inclusion. He recommended that the three pillars of stablecoin regulation be developed at the federal level in the United States: licensing of non-banks, direct access to central bank accounts, and back-up asset insolvency protection. This proposal was aimed at ensuring that stablecoin issuers could operate in a low-risk and transparent regulatory environment, thereby better serving the payments industry and protecting consumer rights.