Stablecoins Under Scrutiny as Senate Prepares to Vote on CLARITY Act

The U.S. Senate is set to vote on the CLARITY Act, which aims to regulate stablecoins and their incentives. The bill has undergone significant changes since its May draft, with 126 amendments sought by Democrats. These updates include stricter rules governing public figures' benefits from cryptocurrencies and grant state attorneys general more power in law enforcement.

Eight banking organizations have expressed concerns about the legislation's impact on bank deposits, urging lawmakers to eliminate certain provisions. The banks argue that stablecoin incentives could lead to a loss of funding and availability of cash, as deposits are used to provide loans. In May, it was reported that U.S. banks use around 80% of deposits to finance loans.

However, the White House's Council of Economic Advisers (CEA) has estimated that banning stablecoin yields would only lead to a $2.1 billion increase in bank lending, which is equivalent to 0.02%. The CEA also noted that even under unrealistic assumptions, the increase in bank lending would be limited to 4.4%.

The CLARITY Act's impact extends beyond the U.S. banking industry, as stablecoins may promote digital dollarization in emerging economies and compel traditional financial firms to improve their competitiveness.