A battle is underway between banks and cryptocurrency firms over interest payments.
Banks can offer interest on deposits, but cryptocurrency firms are asking whether they can offer something similar to people who hold stablecoins, a type of cryptocurrency.
Stablecoins are a kind of cryptocurrency that doesn’t go up or down in value much and is used as a way to pay for things. The companies that issue stablecoins wanted to offer interest on them in the same way banks do on deposits, but Congress already said no.
Timothy Massad, a research fellow at Harvard’s Kennedy School and former chair of the Commodity Futures Trading Commission, said stablecoin issuers aren’t regulated as extensively as banks.
“We deliberately said they can’t do all the things that banks can do,” Massad said. “The question now is, can other people pay a reward or interest if you deposit your stablecoins with them?”
Banks have said a trading platform like Coinbase, where people hold their cryptocurrency, can’t offer that reward or interest. They want a law that says that.
Rob Nichols, president and CEO of the American Bankers Association, said people might not keep their money in a bank if they can get a higher reward stashing it as stablecoins.
“The fear is that money would leave depository institutions,” Nichols said. “And then that money, which normally is lent into the economy for mortgage loans, auto loans, education, et cetera, would be parked in a payment mechanism but it wouldn’t create economic growth.”
Cryptocurrency firms don’t buy that. Summer Mersinger, CEO of the Blockchain Association, said banks don’t want to offer consumers more money on their deposits.
“It’s the argument they’re using to try to hide the fact that they are just trying to take away consumer choice and stop competition,” Mersinger said.
Aaron Klein, senior fellow at the Brookings Institution, said he buys neither side’s arguments, but is still wary of interest on stablecoins.
“When a bank makes loans that go bad, customers don’t have to worry because the federal government insures their deposits,” Klein said. “Stablecoins offer no such assurance.”
Cryptocurrency advocates counter that stablecoins are backed by treasuries and wouldn’t pose any risk.
But each side is now making their case to Congress, in hopes of a law that will favor them.
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