Freemium 2.0

September 22, 2022

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Capital Constipation

September 19, 2022

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Political Tail Risk

September 06, 2022

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Tightening Effects

August 29, 2022

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digital daily: Boring is Beautiful

Boring is Beautiful: US stablecoin legislation was one of the few bipartisan compromises last year. The telling sign of a fair negotiation, neither party is left satisfied. Last Fall, Patrick McHenry, now Chair of House Financial Services, was “grateful and hopeful that this ugly baby, [the stablecoin bill], can grow and prosper into something that is a little more attractive.” The previous Chair, Maxine Waters, had no comment. The baby was revealed to the public on April 15 with crypto-cred – 73 pages released on a Saturday. A hearing on stablecoin with expert witnesses will follow this Wednesday. But beauty is in the eye of the beholder. The Bill signals that the political crypto freeze is thawing. Senator Warren pleaded to make banks boring again. The House proposal does the job. Stablecoin issuers must be regulated by a federal agency, they will have access to central bank liquidity, they must be issued by financial companies, they will be bankruptcy remote entities, and they are not subject to federal deposit insurance. Stablecoin not reserved by US dollar assets – like algorithmic ones – cannot be issued for two years during a period of study, a similar period of reflection for a central bank digital currency. This would turn stablecoin into narrow banks. Sure, there isn’t deposit insurance. But issuance is fully reserved, and the Fed discount window protects against bank-run dynamics. For existing banks, it is a warning shot. Funding costs are going to rise sharply with the increased competition. Or policy rates will need to collapse to level the playing field. Why now? Why not. It’s long overdue.