Treasury Taking ‘Very Hard Look’ at Stablecoin Risks

Deputy Treasury Secretary Justin Muzinich put developers of so-called “stablecoins” like Libra on alert today, warning that their governance structures are of concern for U.S. policymakers. Even stablecoins—which are virtual or digital currencies that are backed by or pegged to real assets, such as fiat currency, to minimize the volatility that has affected cryptocurrencies like bitcoin—that comply with existing money laundering, tax and other requirements may pose risks, Muzinich said.

“If a cryptocurrency checked all the near-term regulatory boxes today and grew to scale, what would be the process for making changes to rules governing the currency in the future?” he asked in a keynote speech at the Clearing House/Bank Policy Institute annual conference. “If a decade from now there were a desire for a stablecoin to go from fully reserved to partially reserved, or to shift its underlying mix of reserve currencies, would that decision be made by a private governing association or by a majority of coin holders? What if foreign actors had acquired a majority of the coins? In any case, would important decisions about our economic system have been taken out of the hands of representatives accountable to the people?”

Muzinich’s comments came as part of a broader regulatory and legislative response to Libra, a stablecoin proposed by Facebook that would be backed by a mix of reserve currencies and governed by a Switzerland-based association. “Decentralized privately-issued digital currencies are not simply a means of payment, but, depending on their structure, can shift some functions traditionally performed by government to the private sector,” said Muzinich. “Policymakers, in pursuing the public interest, will take a very hard look at these issues.”