Former Speaker Paul Ryan Thinks Stablecoins Are Good for the US Dollar: Is He Right?

Former House Speaker Paul Ryan believes that enacting stablecoin legislation could significantly benefit the U.S. dollar. Such legislation could bolster demand for U.S. Treasury securities and strengthen the dollar’s global position.

In a recent interview with Bloomberg, Ryan highlighted the potential integration of the dollar into the ongoing digital currency revolution through stablecoin adoption. He emphasized that stablecoins, unlike cryptocurrencies, are backed by real-world assets such as treasuries and cash.

“Stablecoin legislation would be a good step in the right direction. That could be helpful. That could be done this year,” Ryan said. “That’s one thing you can try and do on the margins to improve demand for bonds and improve dollar adoption.”

fmr speaker Paul Ryan's comments on stablecoins on bloomberg last friday. extremely important for a few reasons: pic.twitter.com/k2fdodTUvJ

— nic carter | BIP-420 (@nic__carter) May 15, 2024

Currently, there is no legal framework governing stablecoins, which limits their widespread deployment and potential impact. However, Ryan acknowledged the ongoing legislative efforts led by Chair Maxine Waters (D-Calif.) and Rep. Patrick McHenry (R-N.C.), with support from Senate Majority Leader Chuck Schumer.

Table of Contents Table of Contents

1. Key Takeaways
2. 'Stablecoins Should be Backed By Treasuries or Cash'
3. Congress Could Pass Stablecoin Legislation This Year
4. Senators Lummis and Gillibrand Introduce Stablecoin Bill
5. State Stablecoins Could Be Next
6. The Bottom Line
7. References

Show Full Guide

Table of Contents

1. Key Takeaways
2. 'Stablecoins Should be Backed By Treasuries or Cash'
3. Congress Could Pass Stablecoin Legislation This Year
Show Full Guide
4. Senators Lummis and Gillibrand Introduce Stablecoin Bill
5. State Stablecoins Could Be Next
6. The Bottom Line
7. References

‘Stablecoins Should be Backed By Treasuries or Cash’

Ryan drew a connection between stablecoin regulation and U.S. Treasury auctions, noting that stablecoins need to be backed by treasuries or cash. This would increase demand for U.S. bonds, he said.

Stablecoins are currently the 16th largest buyer of U.S. bonds, bills, and notes among all sovereigns. The former House speaker said that regulating stablecoins and requiring them to be backed by U.S. bonds would further solidify the U.S. dollar within the digital currency landscape.

“That’s a good thing. And you create new consumer demand for our bonds because they have to have those to back up the stablecoins.”

Highlighting the potential benefits of integrating stablecoins into the financial system, Ryan predicted that their deployment could increase from hundreds of billions to potentially trillions.

He viewed this as a “win-win situation for America,” enhancing the demand for treasuries and deepening the integration of the digital dollar into the global financial infrastructure.

Congress Could Pass Stablecoin Legislation This Year

Ryan said that Congress could pass stablecoin legislation this year, noting the positive discussions taking place on the topic. He described it as a “no-brainer” and expressed cautious optimism about the possibility of reaching a bipartisan agreement on stablecoin legislation.

Stablecoins, which are crypto tokens pegged to relatively stable assets like the U.S. dollar, have gained popularity among crypto traders for trading, borrowing, and lending in the decentralized finance (DeFi) space.

Stablecoin issuers such as Tether and Circle back their tokens with short-term U.S. Treasury bills and other dollar equivalent instruments, profiting from the interest they generate. The rising demand for stablecoins directly translates to demand for U.S. government debt.

However, the stablecoin market, currently valued at over $140 billion, remains unregulated. Ryan argued that a bipartisan agreement on stablecoin legislation, currently being negotiated between Patrick McHenry and Maxine Waters, could address this issue and pave the way for the legal deployment of stablecoins.

Senators Lummis and Gillibrand Introduce Stablecoin Bill

Last month, Senators Cynthia Lummis and Kirsten Gillibrand joined forces to propose a new bill aimed at regulating stablecoins. Under the proposed legislation, payment stablecoin issuers would be subject to reserve and operational requirements, including the creation of subsidiaries dedicated to issuing stablecoins.

The bill defines payment stablecoins as digital assets pegged to the U.S. dollar that are intended for use as a means of payment or settlement. Conversion to dollars would be an obligation for issuers, and the asset itself would not be classified as a security.

Senators Cynthia Lummis and Kirsten Gillibrand introduce the Lummis-Gillibrand Payment Stablecoin Act of 2024, aiming to regulate stablecoins while fostering financial innovation in the US. Legislation emphasizes state-federal partnership for supervision under $10 billion.

— BlockVoyager (@BlockVoyagerAIO) April 17, 2024

The bill also mandates that stablecoin issuers ensure their tokens are fully backed by reserve assets and publicly disclose the nature of those assets. They would need to engage a non-depository trust as a custodian, which, in turn, would be required to use a depository institution as a sub-custodian, as outlined in the bill.

Senators Lummis and Gillibrand have previously introduced various bills addressing the digital assets market, with one bill last summer aiming to define decentralized finance and establish jurisdiction over crypto for federal agencies like the Commodity Futures Trading Commission.

State Stablecoins Could Be Next

The emergence of stablecoins has also caught the attention of governments and states. While the focus has largely been on global stablecoins like Tether and USD Coin (USDC), some states in the U.S. and other countries are considering the launch of their own digital currencies.

Wyoming took the lead in 2023 by signing the Wyoming Stable Token Act into law. The legislation allows for the creation of a specialized stablecoin commission with the authority to issue state-backed stablecoins. The state has allocated a $500,000 administration budget to support the project.

Following Wyoming’s footsteps, Texas introduced bills in April for the creation of a state-based digital currency backed by gold. Lawmakers in the Lone Star State are exploring the potential of launching their own digital currency.

Meanwhile, the Philippines, through its central bank, the Bangko Sentral ng Pilipinas (BSP), has given the green light for controlled trials of a national stablecoin. This stablecoin will be pegged 1:1 to the local peso and aims to explore the potential of a digital currency tied to the country’s fiat currency.

The Bottom Line

The U.S. has a notoriously hard line against cryptocurrency, but stablecoins could be a golden bullet that increases demand for the USD — both at home and abroad.

Paul Ryan advocates for stablecoin legislation, arguing that it would benefit the U.S. dollar by boosting demand for U.S. Treasury securities and enhancing the dollar’s global stature.

As nations around the world work out the place of stable currency in TradFi, for once America does not look behind the curve on one topic.