Michael J. Hsu, US Acting Controller of the Currency, has mentioned the benefits of putting regulations in place in the cryptocurrency sphere, especially on stablecoins. He said regulating the space will give the first benefit of “peace of mind and security” to people using them.
While being a speaker at the British-American Business Transatlantic Finance Forum, Mr. Hsu acknowledged that growth in the cryptocurrency world was so rapid and is still so. The previous indifference is no longer acceptable and cannot be sustained anymore. He emphasized that there is now an urgent need for a robust legal framework for the sector, he emphasized.
He stated further that as more people without banking details continue to use cryptocurrencies and their wallets as an alternative to banks and no longer trust traditional institutions, the more urgent it is to have regulations in place before it gets late.
Hsu was quoted to have said that the main activities of cryptocurrencies have happened in spite of uncertainties and several fraudulent actions. He noted that for financial regulators like himself, what is going on in the crypto space carries a lot of questions such as where regulatory bodies should pay attention to?; what exactly they should do?; and for what reasons?
For Michael J. Hsu, apart from the need to fight financial crimes in the cryptocurrency space, the regulation will serve majorly to forestall potential danger, a bank run being the most potent and imminent of them all.
A bank run is a situation where many people go to banks for a panic withdrawal of all funds from their bank accounts as a result of fear that the banks may become insolvent or that a financial crisis will take place. In many situations, the banks cannot give out cash to all those demanding it because other people also hold those funds.
When banks are involved in a run, the central bank and other regulators in the financial sector can help out, but there is very little that they can do when it comes to the case of cryptocurrencies. This is more so when it comes to stablecoins, as these are, in most situations, the catch for new investors in the crypto world. There is also surety that every stablecoin is backed up by an equal value in fiat currencies, and if it so happens that the surety is broken, then a bank run may occur, posing much harm in the cryptocurrency market.
A Matter of Strategy
The US government has for long been seeking ways to gain control in the cryptocurrency space so as to prevent potential danger from a political point of view: the possible loss of economic power via the dollar.
Last year, the CEO of PayPal, Dan Schulman suggested that bitcoin may be used as a financial weapon by China in its fight for global dominance. Many American politicians are also cautioning that cryptocurrencies may deplete the dollar’s dominance if quick measures are not taken.