Government Funding Deadline, Stablecoins and Digital Assets

Government funding deadline. With government funding due to expire on February 18, the House this week passed legislation to maintain current spending levels until March 11. The Senate is expected to approve the extension next week.

Lawmakers will have another three weeks to reconcile their differences and pass a bill to fund government agencies for the remainder of the fiscal year (September 30). Although there are hundreds of spending provisions in this bill, the main point of contention concerns the magnitude of the spending increases for defense and national programs. There will be spending increases for both that will add to the budget deficit, although the size of those increases is still being worked out. Legislators go through this exercise every year and eventually find a compromise.

Current activity should show the same result by March 11, if not sooner.

Stable coins and digital assets. The House Financial Services Committee held a lengthy hearing this week on the regulation of stablecoins, which are digital assets issued by private entities but backed by other assets, including fiat currencies like the dollar.

During the hearing, a senior Treasury official discussed recommendations made in a report on stablecoins published by the Treasury and other regulators. To close regulatory loopholes and address financial stability concerns, regulators would like Congress to draft legislation regulating stablecoin issuers as banks, a point that has been rejected by some lawmakers. Stablecoins aren’t the only area where regulators want Congress to act. The Federal Reserve recently released a highly anticipated report on central bank digital currency (CBDC) in which it made it clear that it would like to receive guidance from Congress before proceeding with a CBDC. As interest in these burgeoning issues grows in Congress and among the general public (the Biden administration will also step in with an executive order in the near future), it will take time for lawmakers to digest the complexity of these issues and reconcile potentially divergent approaches on how digital assets should be regulated.

Regulators may be waiting a long time for action from Congress and in the meantime will have to tackle these issues using the limited and imperfect powers they already have.

Bipartisanship of the Senate. As Sen. Ben Ray Lujan (D-NM) recovers from a stroke and will likely be out of the Senate for at least another six weeks, Senate Democrats find themselves in the position of being short of a vote in an equally divided Senate. This development further deflects President Biden’s Build Back Better plan of social spending and tax increases, which Democrats have tried to advance through a budget reconciliation process that only requires a majority vote. It also presents another headwind to the Democrats’ continued inability to change Senate filibuster rules as a way to enact comprehensive electoral reforms. Finally, it poses challenges in endorsing the most controversial candidates in the executive branch. However, this development does not prevent the Senate from passing laws with sufficient bipartisan support.

The following bills enjoy bipartisan support and could move forward over the next two months as Senate Democratic leaders grapple with the reality of being one vote short of a majority.

  • Postal reforms. The House this week passed bipartisan legislation to reform the U.S. Postal Service in a bid to make the agency more competitive and financially viable. The Postal Service has posted operating deficits for the past 15 years, including a $4.9 billion deficit in the last fiscal year. Without any changes, the agency is on course to run out of funds by 2024. The House bill would remove a longstanding requirement that the agency pre-fund retiree health benefits, which would save about $27 billion. Unlike previous versions, the current bill does not eliminate weekend mail delivery to residences or close post offices in an effort to cut costs. Interestingly, the bill would also allow post offices to sell certain non-postal items like fishing and hunting licenses. Postal reform has long been debated in Congress, and this year could be the year it is finally enacted.

  • Boost in US tech competition. We discussed this bill last week after it passed through the House. The bill invests federal funds in a wide range of critical science and technology areas, with a particular focus on US semiconductor production. Virtually all lawmakers support the bill’s primary goal of improving US competitiveness in science and technology. A Senate version passed on a bipartisan basis last year, but Republicans opposed the House bill because it addressed many issues that went well beyond the focus of the House. Senate on Technology. The legislation is a top priority for Democratic leaders and President Biden, who are eager to show bipartisan victories in an election year. A final bill, which will be the product of bicameral negotiations, has a good chance of being passed if it remains focused on technological competitiveness.

  • Port congestion relief. Disparities in freight rates have resulted in significant delays in US exports (primarily agricultural products) leaving US ports. A bipartisan bill to address this issue was included in the aforementioned US tech competition legislation approved by the House last week. The freight pricing bill would have little impact on the current supply chain dilemma, but it would provide useful relief in the longer term. Although it was not included in the Senate competition legislation, we believe this provision will be part of any final agreement.

For more, see Washington Weekly, February 11, 2022.

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Expiration: 02/28/23

Approval date: 02/11/2022

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