US Treasury official says stablecoins carry a “potentially big risk”

The US Treasury is still looking into crypto regulations, focusing on stablecoins. Last week, the undersecretary of the Treasury for domestic finance, Nellie Liang, noted that stablecoins carried a “potentially big risk.”

US Treasury focuses on crypto regulations

Comments made by Liang stem from a November 2021 report from the Financial Stability Oversight Council. The official noted that “if Congress does not enact legislation, the regulators will try to use what authority they have.”

The Treasury does not possess much authority in terms of regulating cryptocurrencies. The regulation of stablecoins cannot be done without authorization from the US Congress; thus, Liang noted that there could be a big risk when regulators’ powers are inhibited.

“They can do a little here and a little there, but if these are foundational to crypto-assets and they aren’t stable, that could potentially be a big risk.”

Stablecoins are some of the most utilized cryptocurrencies in the market. Coins such as Tether (USDT) are used by traders to settle trades. However, despite its $75 billion market cap, regulators have scrutinized USDT.

Tether Holdings Limited has previously stated that the value of USDT is fully backed by fiat reserves. However, the growing use of this stablecoin, such as its recognition as an official currency by Myanmar’s shadow government, continues to worry regulators. According to regulators, these coins could disrupt the traditional financial market.

Stablecoins stirring market debate

The comments from Liang are similar to what the Federal Reserve Chair, Jerome Powell, has previously stated. During the Federal Market Open Committee (FOMC) meeting last week, Powell noted, “stablecoins can certainly be a useful, efficient, consumer-serving part of the financial system if they’re properly regulated. And right now, they aren’t.”

However, enforcing stablecoin regulations in Congress does not seem likely. While Senator Elizabeth Warren of Massachusetts is a critic of stablecoins, Senator Pat Toomey for Pennsylvania has welcomed these digital currencies. According to Toomey, stablecoins were an “exciting new technology that creates opportunities for faster payments, expanded access to the payment system, programmability, and more.”

As aforementioned, stablecoins are some of the most traded assets in the crypto market. According to market players, stopping stablecoins on the crypto market could harm the market. Moreover, stablecoins have also bolstered the use of cryptocurrencies for payments because their values are pegged to fiat currencies, and they do not suffer from market volatility.

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