Schwarcz provides testimony to House committee on regulating stablecoins
Recent scholarship by Schwarcz, one of the world’s foremost experts on commercial law, proposes a model law for the regulation of global stablecoins
Stanley A. Star Distinguished Professor of Law and Business Steven L. Schwarcz provided expert testimony to members of the U.S. House of Representatives Financial Services Committee meeting last week to discuss a legislative proposal to regulate stablecoins.
Schwarcz’s written testimony was presented to members of the House Subcommittee on Digital Assets, Financial Technology and Inclusion for the May 18 hearing titled “Putting the Stable in Stablecoins: How Legislation Will Help Stablecoins Achieve Their Promise.” He could not be present at the hearing due to a schedule conflict.
Stablecoins such as Tether and Binance Coin are a form of digital currency that are tied to the value of another asset, most commonly the U.S. dollar, to provide price stability in often volatile digital currency markets. In the U.S., stablecoins are used primarily to “facilitate trading, lending, or borrowing of other digital assets, predominantly on or through digital asset trading platforms,” according to a report by the President’s Working Group on Financial Markets.
While states have enacted a patchwork of regulations for stablecoins, the working group, which includes members of the Federal Reserve System, SEC, CFTC, and other agencies, has asked Congress to pass legislation that would provide a federal regulatory framework. The House committee met to hear testimony on a draft bill under consideration.
Schwarcz, one of the world’s foremost scholars in commercial, contract, and bankruptcy law and a pioneer in the field of asset securitization, has written and spoken widely on regulating digital currencies, including decentralized commercial cryptocurrencies and Central Bank Digital Currencies (CBDCs) issued and backed by a government entity.
In his testimony Schwarcz identified challenges for the domestic regulation of stablecoins such as protecting consumer privacy and guarding against cybersecurity breaches and risks to the greater financial system. Schwarcz analyzed the draft bill and recommended solutions to strengthen it, referring to his recent scholarship that includes Regulating Digital Currencies: Towards an Analytical Framework, 102 Boston University Law Review 1037 (2022) and Regulating Global Stablecoins: A Model-Law Strategy, 75 Vanderbilt Law Review 1729 (2022).
In the latter article, Schwarcz designs, critiques, and proposes text for a uniform model law that can be applied to both domestic and global usage of stablecoins and could provide a legal template for any nation that wishes to regulate the use of digital currencies and stablecoins. That proposed model law was provided to legislators.