A decade after Bitcoin and blockchain made their debut, the US Senate has finally gotten around to holding a hearing on potential regulatory frameworks for digital currencies.
The hearing, which was held by the Banking, Housing, and Urban Affairs Committee, included expert witnesses Mehrsa Baradaran, a law professor at the UC Irvine School of Law; Rebecca Nelson, a specialist in international trade and finance with the Congressional Research Service, and Jeremy Allaire, CEO of Circle Internet Financial Limited, who represented the Blockchain Association.
“The digital currency and blockchain ecosystem is diverse, and care must be taken in determining what gaps may be present in the existing framework and developing a more comprehensive approach,” US Sen. Mike Crapo, an Idaho Republican and chairman of the committee, said in his opening remarks. “With the appropriate balance of regulation, digital currencies, and their innovative underlying technology could provide meaningful benefits.”
One of the main topics discussed in the hearing was the June announcement by social media giant Facebook that it was delving into cryptocurrencies with the launch of Libra, which will be powered by blockchain technology.
The new cryptocurrency will be supported by more than two dozen companies including Uber, Spotify, Mastercard, and Visa, and would be classified as a so-called “stablecoin” because its value would be backed by a basket of low-volatility assets, such as bank deposits and short-term government securities, from stable and reputable central banks.
However, as Nelson pointed out in her testimony, there has been a backlash against Facebook’s foray into crypto over questions about its lack of banking expertise, the size of its network, and concerns about its handling of user data. Nelson cited G-7 finance ministers and central bank governors who said Libra raises “serious regulatory and systemic concerns, as well as wider policy issues, which both need to be addressed before such projects can be implemented.”
The creation of digital currencies came in the aftermath of the 2008 financial crises when many expressed dismay at the banking sector, accusing it of creating inequalities, perpetuating fraud, and harming people with their greed-fueled risk-taking.
The cryptocurrency industry aims to offer a more efficient, confidential, and accessible payments system than what is offere by the bank-operated payments system, which they claim is slow, outdated, inefficient, and exclusionary.
“Our existing financial system is in desperate need of transformation,” said Allaire. “We currently have a global system with limited access and exorbitant fees that impose a tax on real economic activity; a system rife with money launderers and financial crime.”
Allaire said that with digital currencies payments and value exchange will be commoditized and become free services on the internet akin to the way that sharing content or data and communicating online are free.
“This will ultimately return hundreds of billions of dollars of value to the real economy,” he said, “as the fees that people and businesses pay to intermediaries to move value drops to zero. This will also lead to greater economic activity between people around the world.”
However, Baradaran argued that “while I share many of the cryptocurrency industry’s concerns with respect to failures of the banking industry, I do not believe cryptocurrency is the best solution to the problems of financial inclusion and equity in banking.”
Among the stated goals of the cryptocurrency industry is to establish a public payments system available to all, but Baradaran said this was unnecessary because such a public payments system already exists—the Federal Reserve.
“The problems of inequality and inefficiency that bitcoin and the cryptocurrency industry has set out to solve are not problems of technology, they are problems of policy,” Baradaran said. “Every American not only deserves the right to participate in the economy, but also to participate democratically in the monetary policy decision-making that affects their lives. We do not need to replace the Federal Reserve or fiat currency to achieve that. In fact, our Congress must do just the opposite and ensure that our public institutions are achieving their mission.”
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