Regulators Are Standing in the Way of Stablecoin Development, a TCH Paper Alleges

The Clearing House Payments Co. LLC early Tuesday issued a white paper alleging that federal regulators are effectively blocking national banks from issuing stablecoins. This is despite the agencies’ own conclusion that the banks have the authority to issue the digital currency, the paper says. The paper also follows an executive order from President Biden earlier this year intended to lay the groundwork for regulating digital assets, including stablecoins and Central Bank Digital Currencies.

“Banks are ready and willing to do this, but to date no agency has given supervisory approval,” says Rob Hunter, managing director and deputy general counsel for TCH, a New York City-based company that offers payments services, including real-time transfers. TCH is owned by many of the nation’s biggest banks.

Stablecoins are digital currencies whose value is tied to a national fiat currency, such as the dollar. Private firms have developed stablecoins in recent years and national governments have investigated—and some have issued—Central Bank Digital Currencies, a form of stablecoin.

TCH’s 21-page white paper argues that regulatory inaction is “stifling the development of new products and services that are the subject of significant consumer demand,” leaving “the issuance of stablecoins … solely in the hands of entities that are not subject to the full range of … requirements applicable to federally regulated banks.”

The paper points out that one federal banking regulator, the Office of the Comptroller of the Currency, issued letters in 2020 and last year acknowledging the legal authority of national banks to issue stablecoins. Nonetheless, federal regulators have so far “precluded” federally regulated banks from issuing stablecoins or offering “other digital-asset-related services,” the paper says.

Indeed, despite the OCC’s “clear conclusion” that national banks have the legal authority to issue stablecoins, the TCH paper says, the preclusion “has occurred because the federal banking agencies have required that [insured depository institutions] receive approval for those activities on an individual IDI basis, but there have been no public statements of approval granted to federally regulated banking institutions to proceed with an issuance of customer-facing stablecoins.”

Central bank digital currencies are digital tokens representing a national fiat currency. They are issued, as the name implies, by the nation’s central bank, which must maintain reserves against them. Some 112 nations have at least looked into the technology, while 11 have launched a CBDC, according to research by The Atlantic Council, a Washington, D.C.-based think tank

CBDCs may or may not be created through a distributed ledger like a blockchain. Some experts, however, argue there’s little to be gained in managing a national digital currency through the public/private key pairs generated via a blockchain.