The US is considering enforcing bank-like regulations on cryptocurrency companies issuing so-called stablecoins that are less subject to valuation swings, a report has said.
President Joe Biden's administration will also urge such firms to register as banks, The Wall Street Journal reported on Friday.
A stablecoin is a type of digital currency whose value is tied to an outside asset, such as gold or a government-issued fiat currency like the US dollar, to stabilise the price.
Other cryptocurrencies such as Bitcoin and Ether have a tendency to fluctuate wildly.
Citing people familiar with the matter, the Journal said a Treasury-led group also plans to recommend that senior regulators form a panel to look for risks to the financial system. According to the newspaper, the group would be called the Financial Stability Oversight Council.
Last month, it was reported that the US is considering launching a formal review into whether Tether and other stablecoins threaten financial stability.
Over the past few years, stablecoins have thrived - with tokens in circulation now worth more than $120 billion, according to CoinMarketCap.com.
They are used for transactions similar to traditional financial products — like bank savings accounts — but do not offer the same level of customer protection.
As the role of stablecoins grows, regulations should meet the risks they pose and the economic functions they perform, the International Monetary Fund said in a report released on Friday.
The banking sector could also come under pressure if cryptocurrencies, including stablecoins, become an alternative to domestic bank deposits or even loans, the report cautioned.
“Stablecoin trading volumes outpace those of all other crypto assets … primarily because they are highly usable for settlement of spot and derivatives trades on exchanges,” the IMF said, adding that their market capitalisation has quadrupled this year to more than $120bn.
Tether is the largest stablecoin, but its market share has declined sharply in the past few months as major centralised crypto exchanges such as Coinbase and Binance have introduced their own versions.