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With the Senate Banking Committee scheduled to take a vote Thursday on whether crucial stablecoin legislation should advance to the full Senate floor, the time for debating the bill’s pros and cons is drawing to a close.
The 309-page Digital Asset Market Clarity Act, which would set rules for digital assets, has sparked fierce debate as proponents look to it as a crucial playbook for stablecoins in commerce and as bankers fear its provisions could siphon deposits out of financial institutions. The legislation, which divides oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission, has drawn more than 100 amendments, and these have also sparked debate.
Of the banking committee’s 24 members, 13 are Republicans, and all 13 must vote yes to send the legislation to the Senate if the other 11 oppose the bill. If the bill passes the committee, observers say, it could reach the full Senate this summer, where its prospects are far less clear. “It will be passed out of the committee. I’m less certain about the Senate floor,” says Eric Grover, proprietor of the payments consultancy Intrepid Ventures and a close observer of Congress.
Long-time observers of the payments industry concede the fledgling digital-asset economy requires more rule-setting, which could lend impetus to passing the bill. But banks generally oppose the legislation, fearing stablecoin holders will prefer to keep their money in the digital currency, particularly if issuers offer significant rewards. Indeed, stablecoins “are rightly perceived as threatening by U.S. banks,” says Grover. “The banking world is worried.”
While Grover sees that concern as “real,” he also argues it’s “a little overblown right now.” Still, average interest rates on demand deposits stand at 0.07%, while the average yield on savings accounts is 0.38%. “The average interest rate on demand deposits is pretty low,” Grover concedes. The legislation “will force banks to significantly increase yield on deposits, or lose deposits. That’s a genuine fear.”
Other observers also argue the threat from stablecoins is exaggerated. “I have long been skeptical of the claim that stablecoins would siphon deposits, because we already have high-yield savings accounts, and there is enough friction to keep people from using them as transaction accounts,” notes Aaron McPherson, principal at the payments advisory AFM Consulting, in an email message. “Stablecoins do have payments integrated with them, but there are precious few places to spend stablecoins. That is why merchant support for direct payments (i.e., not card-mediated) is so important. That will take time to emerge. In short, I think it will be a long time before stablecoins can threaten deposits, if they ever do.”
Other financial products, in fact, could pressure banks more directly than stablecoins, McPherson says. “Tokenized money market funds are an alternative to stablecoins that do much the same thing and provide yield. That is probably the more salient threat,” he says.
The Banking Committee’s bill also includes a rule requiring that stablecoins be backed by a reserve on a one-to-one basis, with the reserve consisting of so-called high-quality assets. Other rules require monthly audits and beefed-up compliance with anti-money-laundering rules. On a matter that rattles banks, the bill permits rewards on holdings but with limits on idle balances.
