Don't throw the crypto out with the Libra, senators say
WASHINGTON — Just two weeks after lawmakers grilled a Facebook executive on the company's Libra plan, senators said the U.S. should be a leader in both the development and the regulation of digital currencies.
Members of the Senate Banking Committee on Tuesday struggled to reach any consensus on a regulatory framework, but they seemed to acknowledge that the cryptocurrency technologies now provoking suspicion from Washington could also have a public benefit.
“I think there’s potential here and it’s not going to go away,” Sen. Catherine Cortez Masto, D-Nev., said at the hearing Tuesday. “It’s just something we have to address because if we as a country do not lead in this technology, China or some other country is going to do so.”
Senators appeared more open to digital currency generally, but echoing criticism of Facebook's plans they said policymakers need to address potential dangers.
“I do believe that it has some incredible potential that can be utilized for good, and it does have incredible risk that can be utilized for bad, and we just need to get a handle on that,” said Senate Banking Chairman Mike Crapo, R-Idaho. (Crapo was the only Republican member who attended the hearing.)
Crapo said his goal is for the U.S. to “stay at the forefront” of both the innovation and regulation of cryptocurrencies.
Yet Democrats on the panel expressed skepticism of claims by digital currency executives that the technology can foster financial inclusion.
For example, Facebook has touted Libra as a mechanism to help unbanked and underbanked consumers gain access to inexpensive financial services. But critics say cryptocurrencies also pose concerns about privacy, money laundering, fluctuations in currency values and the security of users' funds.
“If we’re going to establish a regulatory framework for this tech, we need to not be so triumphant about all of the problems that it’s going to solve, but we also have to be clear-eyed about the problems it may create,” said Sen. Brian Schatz, D-Hawaii. “And so when tech executives and their funders talk as if all of societal ills will be solved by a new code, you will forgive us if we’re a little bit skeptical about all of that.”
Mehrsa Baradaran, a law professor at the University of California, Irvine and one of three witnesses at the hearing, agreed that digital currency providers' claims about serving low-income communities are overstated.
“In order for cryptocurrencies to be the solution to financial inclusion, they must be widely adopted and user-friendly — even for the least technologically savvy on both ends of a transaction,” she said in her written testimony. “This is the policy equivalent of moving a mountain.”
And Sen. Sherrod Brown, D-Ohio, the ranking member of the committee, argued that profit-driven companies shouldn’t be trusted to be responsible for financial inclusion.
“There are some things — like our currency, our payments system, and the protection of our savings accounts — that everyone in the country has a stake in,” he said in his opening statement. “We should not be handing those kinds of public resources over to wealthy special interests, so they can squeeze more profits out of ordinary Americans.”
Even a digital currency executive agreed that cryptocurrency companies alone couldn’t provide equal access to financial services for everyone.
“I think the risks that we have to address in the financial system, whether it’s access, criminal abuse, data security, privacy —those exist significantly,” said Jeremy Allaire, the co-founder and CEO of Circle Internet Financial Limited. “This technology actually does provide an avenue to improve upon those, but there’s no silver bullet here. These are people who have to build and innovate and collaborate with policymakers.”
Baradaran and others also maintained that financial access would be improved if the Federal Reserve were to open its payments system to individual consumers rather than just banks. The central bank is involved in a long-term process with various stakeholders focused on establishing a faster payments system.
“They have the ability to modernize our payments system," Brown said, "and I’m worried that if they don’t move quickly, Facebook or Wall Street or some tech company will use it to squeeze more profits from working families and community banks and will break that critical public infrastructure.”