Republicans Accuse US Federal Reserve Of Intervention In Tightening Stablecoin Rules

Members of the Republican Party who are members of the US House of Representatives' Financial Services Committee have filed charges against the US Federal Reserve (The Fed) over alleged interference in efforts to draft federal rules for stablecoins.

Chairman Patrick McHenry, who represents the R-NC area, has sent a letter to Federal Reserve Chairman Jerome Powell, voicing his concern over the recent expansion of surveillance by the Fed on crypto-related activities in the banking sector.

McHenry argues that the Fed's actions could hamper progress in drafting appropriate regulations. The letter was issued after the Fed announced a new program on August 8 with the aim of tightening surveillance of crypto-related activity in American banks, including banks in the state.

In this program, the Fed seeks to "enhanced oversight of new activities" such as "currence of crypto assets, loans with crypto collateral, facilitation of crypto asset trading, and involvement in the issuance or distribution of stablecoin/dollar tokens" according to the outline of its program.

Republicans, including McHenry, are concerned that this effort could jeopardize the participation of financial institutions in the digital asset ecosystem. "If this action is not reviewed, it is certain that it will hinder financial institutions from playing a role in the world of digital assets," McHenry wrote along with other members in a letter released on August 23.

The letter was also signed by members of the Republican Party, French Hill from Arkansas and Bull Huizenga from Michigan. They argue that Congress should be the institution that decides this framework because they can provide certainty for market participants.

The Fed Has Not Yet Responded

McHenry confirmed that the New Activity Supervision Program implemented under SR 23-7 is seen as providing additional regulatory burdens to banking institutions involved in crypto assets and providing the Fed with further tools to reject crypto-asset-related activities.

In order to ensure transparency, McHenry asked the Fed to provide responses to a number of questions related to the evaluation process of this program and their plans to deal with state banks' proposals.

Through this program, state member banks are required to obtain written approval from the Fed before using distributed ledger technology (DLT) or similar technology in making payment transactions as principal, including issuance, storage, or trading in dollar tokens. The Fed was given until September 29 to provide McHenry an answer based on the letter.