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Stablecoins Need Cash Backing, Audits, US Senator Says

A U.S. senator said she thinks stablecoins should be backed by cash and might need to be issued by banks, Bloomberg reported.

Wyoming Sen. Cynthia Lummis, who has become one of Capitol Hill’s biggest supporters of cryptocurrency, said stablecoins “should only be issued by depository institutions or through money-market funds or similar vehicles,” according to the report.

“Stablecoins must be 100% backed by cash and cash equivalents, and this should be audited regularly,” she said, per Bloomberg.

Her proposal comes as crypto’s overall visibility has begun to grow more complicated in Washington, the report stated. Lawmakers and regulators both have been looking to oversee on the expanding industry. Stablecoins, which are usually tied to the U.S. dollar and other fiat currencies to cut down on volatility, have been a focus as government officials have debated how to regulate them.

Stablecoins, including Tether, have been used by investors to buy other cryptocurrencies like bitcoin, according to the report. The concern among watchdogs is that the coins have mostly gone unregulated despite being used more often for transactions resembling traditional financial products, like bank savings accounts, without offering the usual level of consumer protections.

Treasury officials are working on a report on stablecoins, with officials looking into a formal review into whether there’s any economic threat, according to the report. If stablecoins end up getting labeled as a traditional financial product, more regulation could be in their future.

The Federal Reserve is currently looking into how cash can stay relevant in the world as consumers move on to more digital forms of payment. A digital U.S. dollar, which could be accessed on peoples’ phones, is being considered.

Read more: Stablecoins Under the Microscope as US Preps Digital Currency Framework

The Fed might also seek comment on whether it should create its own digital coin, which would likely compete with stablecoins.

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