Various criticisms were expressed regarding the current and future role of stablecoins at the public hearing held in the House of Lords, the UK’s upper house. The session was held as part of a parliamentary inquiry into how stablecoins should be regulated.
The Place of Stablecoins in the Financial System was Discussed
Financial Times writer Chris Giles, known for his articles on economics, said in his statement to the committee that stablecoins were not widely adopted in the UK due to the lack of a clear legal framework and regulation. Giles stated that these assets can be considered high risk in the current situation.
Stating that stablecoins cannot significantly change the function of banks in the UK financial system, Giles emphasized that banks in the country already have low-cost and fast transfer opportunities.
I don’t think stablecoins have much of a role other than their sole function as a means of transitioning into crypto assets.
Attention was drawn to the risks of illegal use
Giles also argued that stablecoins should not pay interest if they become means of payment. He stated that current interest-bearing current accounts do not transform the entire financial system and claimed that concerns about this issue are exaggerated.
Stating that stablecoins should be subject to serious regulations, Giles stated that strong collateral rules and liquidity measures are required. He also warned that these digital assets could be used in illegal transactions.
Stablecoins can become attractive for illegal activities as a new generation “cash bag”. Therefore, Know Your Customer and Anti-Money Laundering requirements must be stricter.
Criticism of Stablecoin Laws in the USA
Another name who spoke at the committee was American law professor Arthur E. Wilmarth Jr. Wilmarth stated that tokenized deposits are safer and more effective compared to stablecoins. Wilmarth is a professor at George Washington University School of Law and is known for his work in banking law.
Criticizing the GENIUS Act, which was enacted in the USA and enabled institutions other than banks to issue stablecoins, Wilmarth argued that the law was a big mistake.
A payment instrument like stablecoin should only be offered by fully regulated banks.
Wilmarth claimed that issuers other than banks were included in the financial system by circumventing regulation, which weakened the supervisory framework built over centuries.
While Professor Wilmarth claimed that mistakes were made in stablecoin regulations in the USA, he also stated that he thought that the UK adopted a more cautious approach on this issue.
