The U.S. Senate Banking Committee Will Vote on the Clarity Act: There was positive news on the U.S. Clarity Act about a week and a half ago, when U.S. banks and crypto firms finally reached a compromise on whether stablecoins should be allowed to pay interest or rewards, as we noted in last week’s Firi Weekly. The bill is expected to create clearer regulation for the U.S. crypto industry. Among other things, it could strengthen customer protections, improve operating conditions for crypto businesses, and make it easier for traditional financial institutions to engage more deeply with crypto.
Last week, the U.S. Senate Banking Committee scheduled a discussion and vote on the Clarity Act markup for this Thursday, followed by the committee’s public release of the bill earlier this week
In the meantime, American banks and their lobby organizations spent much of last week arguing that the compromise should be tightened further. As a result, it is not certain that the bill will pass the Senate Banking Committee on Thursday. Even if it does, several obstacles still remain before the Clarity Act can potentially become law. We are following closely what happens on Thursday. Nevertheless, there is no doubt that developments in recent weeks have been quite positive and have brought us closer to the Clarity Act than ever before.
Christine Lagarde Is (Still) Not a Stablecoin Fan: European Central Bank (ECB) President Christine Lagarde said in a speech on Friday, later published on the ECB’s website, that there are limited arguments for promoting stablecoins in Europe, including euro-denominated stablecoins. In her view, the technological case for stablecoins can be replicated by central bank infrastructure. Her comments came even as at least 12 major European banks are expected to launch a euro-stablecoin later this year.
Lagarde also argued that stablecoins can pose financial stability risks. In a period of market stress, mass redemptions could create a self-reinforcing cycle of further redemptions and potential turmoil. She also said stablecoins could lead to deposit outflows from banks and other financial institutions that play a central role in lending to productive parts of the economy, including European companies.
There are many points in Lagarde’s speech that would be worth addressing in this note, but doing so would make it too long. Ultimately, the risks of anything new in the financial industry should never be underestimated. That said, it is worth noting that stablecoins available in Europe are already heavily regulated under the European Union’s Markets in Crypto-Assets Regulation (MiCA), which addresses these risks in considerable detail.
It is worth discussing Lagarde’s argument that the ECB can effectively achieve the same outcome with its future digital euro, also known as a central bank digital currency (CBDC), meaning digital money issued directly by a central bank. We doubt the ECB can replicate the success stablecoins have had over the past few years, for several reasons. The Digital Euro will not launch before 2029 at the earliest, it will run on ECB infrastructure that is neither global nor open by design, and it may only be available to banks and other financial institutions rather than end users, among other limitations. In other words, unsurprisingly, we do not agree with Lagarde’s overall take.
Morgan Stanley’s E*TRADE Launches Crypto Trading: E*TRADE, the large U.S. brokerage owned by Morgan Stanley, one of the world’s largest investment banks, announced last week that it will launch crypto trading later this year for its 8.6 million clients. This follows the launch of crypto trading a few weeks ago by another U.S. broker, Charles Schwab, which has around 39.1 million clients.
E*TRADE’s parent company, Morgan Stanley, also launched its first U.S. Bitcoin exchange-traded funds (ETFs) only a few weeks ago. It surely appears that one of the world’s largest investment banks is gradually but steadily expanding its crypto offering across the board.
