Texas to Consider Stablecoins “Money” for Regulatory Purposes
The Texas Department of Banking states ‘crypto is not money’, but makes an exception for pegged digital assets.
A memo by the Texas Department of Banking reveals the US state is now considering stablecoins as money and might require a license for issuing such digital assets. The memo was published on January 2.
Stablecoins are a kind of centralized cryptocurrency backed by conventional fiat currency, precious metals, or other traditional assets. Some stablecoins are also backed by algorithms. Supervisory Memorandum – 1037 examines current cryptocurrency trends, including the introduction of stablecoins to the market, and discusses the regulatory framework of digital assets under the Texas Money Services Act.
“A licensing analysis will turn on whether the stablecoin provides the holder with a redemption right for sovereign currency thus creating a claim that can be converted into money or monetary value,” stated the memo. “This is true regardless whether the redemption right is expressly granted or implied by the issuer. […] A virtual currency business that conducts money transmission must comply with all applicable licensing provisions.”
The recent memo is an updated version of one issued back in 2014. At the time Banking Commissioner Charles G. Cooper stated the Texan regulatory framework does not consider crypto assets as “money”, and thus exchanging crypto for fiat does not fall under “currency exchange”. However, this allowed for cryptocurrency exchanges to operate from Texas without any currency transaction licensing requirements.
Traditional Crypto Still Not Money
The document specifically states that cryptocurrencies in Texas are still considered “not money under the Money Services Act”, thus receiving digital assets may not be considered a monetary transaction. However, the document makes an exception for stablecoins.
“As already stated, a cryptocurrency is not currency as that word is defined in the Money Services Act. […] A unit of cryptocurrency is also not a claim. It does not entitle its owner to anything and creates no duties or obligations in a person who gives, sells, or transfers it,” reads the document.
“On the other hand, stablecoins that are pegged to sovereign currency may be considered a claim that can be converted into currency and thus fall within the definition of money or monetary value.”
Cooper argued for the existence of cryptocurrencies and defined them as an “electronic medium of exchange“ that is lacking the status of a “legal tender.”
“A unit of cryptocurrency does not represent a claim on a commodity and is not convertible by law,” added the Banking Commissioner, stressing that there is “no governmental authority or central bank” that establishes its worth through “law or regulation.”
In the United States, where crypto regulations differ from state to state, Texas is believed to be one of the most friendly jurisdictions towards cryptocurrencies and blockchain projects. However, the state historically has taken uncompromising actions towards ‘bad actors’ in the space. In April 2018, Texas released a detailed report on its efforts to keep bad crypto players out of the state. The Texas State Securities Board has also issued warnings in the past against crypto scammers, including the notorious Bitconnect Ponzi scheme.