Sen. Cynthia Lummis (R-Wyo.) took aim at stablecoins on Wednesday, saying they “must be 100 percent backed by cash … and this should be audited regularly.”
In a speech on the Senate floor that largely focused on the potential development of a U.S. central bank digital currency (CBDC), Lummis expressed her concern that stablecoins are not fully backed “in a transparent manner,” echoing the concerns of many in the crypto community.
The two largest stablecoin issuers – Circle and Tether – have revealed that their products were backed by a combination of cash, cash-like products, short-term securities and commercial paper. In attestations published earlier this year, Tether executives announced that roughly half of Tether’s reserves are held in commercial paper, while Circle said its reserves are largely comprised of cash and highly liquid money-market funds.
Those attestation reports, however, differ from full audits in that third-party auditing firms merely verify the information provided by the issuer. A full audit as suggested by Lummis would be a first in the stablecoin sphere.
Lummis isn’t the first crypto-friendly lawmaker to express concerns about stablecoins. Earlier this year, Rep. Warren Davidson (R-Ohio) suggested that stablecoins might meet the definition of a security, which would subject them to regulatory oversight from the U.S. Securities and Exchange Commission (SEC).
A highly anticipated Treasury Department report on stablecoins is expected to be made public in the coming weeks.
In her speech on Wednesday, Lummis also established her guiding principles for the development of a U.S. CBDC.
Lummis’ remarks come a day after Federal Reserve Chairman Jerome Powell called on Congress for new legislation to authorize the Fed’s plans to create a digital dollar.
The key tenets of a digital dollar laid out in Lummis’ speech included legitimate need, financial inclusion, programmability, avoiding systemic risk and privacy.
“Americans must have confidence that a CBDC is not being used for surveillance purposes … we cannot allow a CBDC to become a panopticon, as will soon be the case with China’s CBDC,” Lummis concluded.