How Russia and China threaten to front-run US on stablecoins, as legislation stalls

The BRICS group of countries has announced that it is working on its own payments rails.
The news from the bitterest rivals of the US could stimulate Congress to move on long-awaited stablecoin legislation.

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Partisan squabbling and a dysfunctional Congress have stalled US stablecoin laws.

But reports that a group led by Russia and China is creating a new blockchain payments system to rival Western ones may change that.

“This could be the national security risk that makes the US Congress move on stablecoin legislation, or at least brings folks to the table,” Ron Hammond, director of government relations at the Blockchain Association, told DL News.

The five-nation BRICS group is working on an independent payments system “to increase the role of BRICS in the international and monetary financial system,” according to Russian media.

BRICS comprises Brazil, Russia, India, China, and South Africa. It is looking to add new members, including Iran.

The US dollar is widely used in global trade, cementing the US’s economic dominance.

Many analysts see challenges to the dollar’s status as the global reserve currency — or “de-dollarisation” — as a geopolitical risk to the country.

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A Morgan Stanley report in January cited the rise of Bitcoin, stablecoin volumes, and increasing interest in central bank digital currencies as macroeconomic threats.

The Federal Reserve has said the US is unlikely to develop a digital dollar any time soon, and so lawmakers may wish to encourage trustworthy dollar-denominated stablecoin issuers.

Promising bill

House Financial Services Committee Chair Patrick McHenry has sponsored one of the most promising efforts to create a federal framework for stablecoin regulation.

A version of it passed out of committee in July — meaning it can now be considered by the full House of Representatives, a big step toward becoming law.

McHenry and the committee’s top Democrat, Maxine Waters, have hammered out versions of this bill for years.

Still, there is disagreement along broadly partisan lines about who should be the primary regulator of stablecoins.

Generally speaking, Democrats favour the Fed, while Republicans say issuers should be regulated at the state level.

Hammond said talks between Waters and McHenry have restarted.

“The BRICS news might be another potential threat that could move this bill across the finish line,” he said.

Hammond said he’s optimistic that the stablecoin bill will pass the House before Congress breaks for its August recess.

Once that’s done, its sponsors could try to add it to an omnibus bill — a larger bill made up of smaller, broadly related ones — or other large bills to get through Senate.

Email me joanna@dlnews.com, or Telegram @joannallama.