Lawmakers Debate Stablecoins vs. CBDCs, Push for Clear Regulation

Lawmakers and industry experts convened a hearing on March 11 to discuss the significance of US dollar-backed stablecoins in the financial system and the need for a regulatory framework for these assets. 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,” also addressed concerns surrounding a potential central bank digital currency (CBDC) in the US.

The discussion highlighted the potential benefits of stablecoins and the drawbacks of cbdcs. House Financial Services Committee chairman French Hill argued that stablecoins foster competition and innovation, unlike CBDCs, which would concentrate financial power within the federal government and restrict consumer choice. Hill emphasized that properly regulated stablecoins can enhance US dollar dominance and modernize payment systems without excessive government control.

Representative Bill Huizenga and Congressman Andy Barr also supported the potential of stablecoins, noting their ability to simplify the US payment system and maintain the US dollar’s status against competitors, including foreign CBDCs. Charles Cascarilla, CEO of Paxos, dismissed the notion that a CBDC would provide benefits beyond those offered by stablecoins, stating that innovation in the US has historically come from the private sector.

Congressman Tom Emmer supported prohibiting CBDCs in the US, referencing an executive order signed by President Donald Trump on Jan. 23. This order established a framework to drive stablecoins’ growth while prohibiting federal agencies from pursuing CBDC plans.

The hearing reinforced the growing consensus that stablecoins require a clear legal framework to ensure stability and adoption while preventing government overreach. Representative William Timmons emphasized that regulatory clarity is a priority, noting that digital assets remain vulnerable to enforcement actions that could drive innovation overseas without clear legislation.

The STABLE Act, which aims to regulate digital payment instruments like stablecoins, was central to the discussion. The bill proposes allowing banks and nonbanks to issue stablecoins, with oversight varying based on the amount issued. It also mandates that US dollars or approved assets fully back stablecoins, ensures public redemption policies, and subjects issuers to banking-like supervision.

Caroline Butler, global head of digital assets at BNY Mellon, emphasized the importance of the asset segregation framework laid in the STABLE Act, stating that client assets should never be commingled with firm assets. Cascarilla reinforced this stance, arguing that legal protections for reserve holding are critical to maintaining a stablecoin’s value. Randall Guynn, Chairman of Davis Polk & Wardwell’s financial institutions Group, also highlighted that requirements from the STABLE Act that guarantee a secure backing for stablecoins could make these assets a “no questions asked” type of money.

Carole House, a senior fellow at the atlantic Council’s GeoEconomics Center, acknowledged the STABLE Act’s cybersecurity provisions and highlighted their importance in securing digital financial infrastructure. Beyond regulatory considerations, the hearing also pointed out stablecoins’ role in financial inclusion. Cascarilla noted that stablecoins provide a means for unbanked individuals to access digital dollars through smartphone wallets, enabling financial participation for billions worldwide who lack traditional banking access.

Banks also see a role for themselves in the stablecoin ecosystem. Butler stated that financial institutions could provide trust and confidence, ensuring stablecoin payment mechanisms evolve alongside traditional payment rails. The hearing underscored the importance of a balanced regulatory approach that fosters innovation while protecting consumers and maintaining financial stability. The discussion highlighted the potential of stablecoins to modernize payment systems and promote financial inclusion, while also addressing the concerns surrounding CBDCs and the need for a clear regulatory framework.