American University Law Professor: Stablecoins Need Federal Regulation to Prevent Financial Risks

Hilary Allen, a law professor at American University, has argued for federal regulation of stablecoins as a potential threat to the banking system and the public. She warned that stablecoins could lead to bank instability and ultimately require emergency government assistance. The comments come as Congress steps up regulation of stablecoins, even though the chances of a stablecoin bill passing in a presidential election year are slim. Marcelo M. Prates, an expert on financial policy and regulation, argued that stablecoins should be properly regulated, but stressed their potential as electronic money to help increase financial competitiveness, reduce costs and promote financial inclusion. He recommended three pillars of stablecoin regulation at the federal level: issuing non-bank licenses, direct access to central bank accounts, and bankruptcy protection for standby assets. This proposal is designed to ensure that stablecoin issuers can operate in a low-risk and transparent regulatory environment, thus better serving the payments industry and protecting consumer rights.