Recent developments in financial innovation expose the shortcomings of current U.S. stable coin policy, which fails to strike a delicate balance between promoting financial innovation without sacrificing consumer protection and necessary regulation. As the world's financial leader, the US is at a crossroads. Will it become a central player in developing the next generation of financial technology, ensuring dollar dominance, protecting consumers and preventing illicit finance, or will it leave this task to other countries? Leaving it to other countries would be a serious mistake, and the U.S. should be at the table.
While some of the proposals before Congress look promising, we are partners in crafting legislation that addresses key policy challenges that previous proposals have faced: the Lummis-Gillibrand Payment Stability Coin Act of 2024 is not a bill in a vacuum, but a bill that would address and seek to address the dual banking system. The Act would preserve current state authority over non-depository trust companies and provide parity between federal and state banking charters, while recognizing the role of the Federal Reserve Board (FRB) as the guardian of monetary policy. This bill creates a healthy balance of power by ensuring that the Federal Reserve and the states must act in concert with each other when supervising trust companies with less than $10 billion in capital.
In drafting this bill, we prioritized ensuring that innovation thrives. The bill would allow stable coins to instantly send payments anywhere in the world with lower fees than current methods. Currently, financial transfer technologies such as wire transfers can take up to 10 days, which is often too long for urgent transfers. This will allow innovators to create new programs and applications that are more controllable and flexible for consumers. The possibilities for using stablecoins are numerous, and we are just beginning to see how financial innovation will evolve when stablecoins become a popular means of payment.
One of our primary goals in drafting stable coin legislation is to calm public fears. Too many Americans are familiar with stable coins only through high-profile headlines about the scandal. While some of our colleagues shy away from the issue, we see these developments as an opportunity to strengthen the system after repeated failures. Together, we have developed robust custody practices for issuers to prevent commingling of funds.
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