The Lummis-Gillibrand Payment Stablecoin Act had been in the works for some months.
The law also sought to preserve the existing system of state and federal charters.
Legislation outlining a legal framework for payment stablecoins has been introduced by US Senators Kirsten Gillibrand and Cynthia Lummis. The Lummis-Gillibrand Payment Stablecoin Act, which the two senators announced on April 17, had been in the works for some months and was scheduled to be unveiled in 2024.
Prohibiting “unbacked, algorithmic stablecoins” (presumably a reference to TerraUSD’s (UST) 2022 depegging from the US dollar), the law also mandated one-to-one reserves for issuers, established state and federal regulatory regimes for businesses, and forbade the illegal use of stablecoins, according to Gillibrand and Lummis.
Senator Gillibrand stated:
“Passing a regulatory framework for stablecoins is absolutely critical to maintaining the U.S. dollar’s dominance, promoting responsible innovation, protecting consumers and cracking down on money laundering and illicit finance. To draft the strongest bill possible, our offices worked closely with the relevant federal and state agencies and I’m confident this legislation can earn the necessary support in the Senate and the House.”
Must Adhere to Proper Custody Policies
Moreover, the 179-page bill states that approved institutions may create stablecoins “up to any amount” under a limited-purpose state charter, and that state non-depository trust firms can issue payment stablecoins up to $10 billion.
In addition to establishing custody regulations for non-depository trust corporations, the law sought to preserve the existing system of state and federal charters. According to a one-page legislative explanation document, issuers must adhere to proper custody policies, particularly in consideration of FTX.
Senator Lummis demanded that the Justice Department investigate stablecoin issuer Tether in October 2023 on allegations that the company helped Hamas get funding after their assault on Israel.
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