U.S. Stablecoin Bill Takes Big Step Despite Fight From Democrats, White House

U.S. House lawmakers cleared stablecoin legislation for the next step in its route through Congress on Thursday, though the House Financial Services Committee moved the bill toward a potential floor vote without bipartisan support as Chair Patrick McHenry (R-N.C.) blamed White House objections for the stalemate.

In a contentious hearing Thursday that ended with a 34-16 vote to clear the legislation for wider consideration in the House of Representatives, the panel’s top Democrat, Maxine Waters (D-Calif.), said it was really McHenry who shut down the talks early after negotiations broke down the night before the hearing. The battle sullied what's otherwise the high-water mark of stablecoin progress in Congress.

“Today I had hoped to announce an agreement with the ranking member on stablecoins legislation,” McHenry said at the hearing's outset. “This will not be the case … It was the White House’s unwillingness to compromise that has once again brought that negotiation to a halt.”

The news comes a day after the finance-focused lawmakers advanced three bills on crypto issues to a vote in the full House of Representatives, the first time they advanced laws fully dedicated to the topic. Also today, the House Agriculture Committee followed up with an approval of that crypto markets oversight bill that had previously cleared McHenry's panel.

McHenry said he was “disappointed” with the outcome on the stablecoins work after negotiations spanning 15 months, but he didn't explain the details of the latest disagreement with the executive branch.

Any U.S. stablecoin bill would also have to win support in the Democrat-led Senate, so a bill coming solely from House Republicans rather than a bipartisan effort may be less likely to influence that other chamber. McHenry's choice to push the bill forward over the loud objections of committee Democrats may please fellow Republicans but could also harm its chances of becoming law.

Waters said the bill was “deeply problematic and bad for America,” and that it “promotes a race to the bottom by creating 58 different licenses,” allowing issuers to potentially include a wide range of assets in their reserve and allowing large corporations such as Meta or Walmart to issue money.

According to Waters, Democrats were concerned about the reserve provisions in the bill, as well as the parties' different views on the role federal regulators should have over stablecoin issuers – especially the Federal Reserve's enforcement and supervisory reach into issuers licensed by state agencies.

“I urge Republicans to pull this extremist piece of legislation from the markup,” Waters pressed, though the day ended in a 10 p.m. vote on the bill. “Why the rush? Why can't we continue this negotiation?”

The Clarity for Payment Stablecoins Act was introduced by McHenry last week, marking the latest in a long series of stablecoin legislation drafts he's had his hand in since last year, and it seeks to finally offer a regulatory framework for crypto tied to the value of fiat currency. Stablecoins are a core element of the crypto markets, providing steady tokens with which investors can trade in and out of more volatile assets.

The Thursday markup of the Republicans' stablecoin bill was highly combative, with Republicans pushing forward and Democrats dragging their feet on every procedural point. The effort in the committee to openly negotiate the bill's details underlines the ongoing stalemate for U.S. stablecoin oversight.

A White House spokesperson did not immediately respond to a request for comment. Waters said neither the Fed nor the U.S. Treasury Department support the bill as it stands.

During the debate, Stephen Lynch (D-Mass.) suggested voting be postponed to September, saying Democrats hadn’t had sufficient chance to pitch their ideas. Waters backed up that request, asking McHenry to consider working on it through the August recess of Congress and coming back to finish it after the break.

“We have had no meaningful opportunity to amend this bill ... that's an embarrassment,” Lynch said. “We want to be heard, and we want to have input on this."

As in the committee's approval of the wider market-structure legislation this week, several Democrats – including Reps. Jim Himes (D-Conn.), Josh Gottheimer (D-N.J.) and Ritchie Torres (D-N.Y.) – sided with entire Republican membership of the panel to approve the stablecoin bill.

The committee addressed several other bills on Thursday, also including one from Rep. Warren Davidson (R-Ohio) that's meant to protect people's ability to keep self-custodied wallets for crypto assets. Though some Democrats argued that it would allow illicit abuse and let people hide assets from the government, the panel approved it 29-21.

UPDATE (July 28, 2023, 02:12 UTC): Adds information on Democrats supporting the bill.