In crypto, only a few trust?
Maybe not — not, at least, with a hefty amount of regulatory oversight.
In a hearing titled “Examining Regulatory Frameworks for Digital Currencies and Blockchain,” the United States Senate Banking Committee heard from industry participants and analysts, with a common refrain that potential and risk are in the offing, and new regulations are needed.
The Tuesday hearing, of course, comes in the wake of an examination earlier this month by the Senate Banking Committee of Libra, the proposed digital currency in the works from Facebook and a host of other companies through a consortium model.
In remarks Tuesday (July 30), Sen. Sherrod Brown of Ohio said that efforts such as those from Facebook on Libra, are risky. Facebook, he said, has proved that it “cannot be trusted. They break things like … political discourse … relationships and privacy. Now they want to break our currencies and payment systems, while hiding behind the phrase ‘innovation.'”
Jeremy Allaire, co-founder and CEO of payments company Circle, testifying on behalf of the CENTRE Consortium, said that the current banking system is vulnerable to money laundering, where according to his testimony as much as 99 percent of money laundering is undetected.
The problem is significant, he noted, where per stats from the UN Office of Drugs and Crime, the amount laundered through the global financial systems exceeds $2 trillion, with $300 billion laundered in the United States.
“Only detecting 1 percent of financial crimes is not enough,” he told the panel.
He said that access to capital is limited for smaller firms, and further issues with the existing financial system come through privacy violations and data breaches due to the vulnerabilities of legacy technology.
“Our identities are no longer secure,” he said, and the cost of data breaches could reach into the trillions of dollars.
With the adoption of digital assets and blockchain, he contended, know your customer (KYC) requirements would be satisfied and data leakage would be reduced.
“We will become comfortable with the adoption of a mix of private and public monies being available to everyone, everywhere, and will see the rapid development of global basket currencies that become preferred for settlements and storing value,” he said, according to testimony.
And with a nod to Libra, he said that upon the founding of Circle, “we believed that a digital currency based on existing fiat currency would emerge,” and he said that where Libra seeks to establish a new currency and unit of account, reserve currencies can work effectively as digital currencies — stating that stablecoins are “critical building blocks” for the digital economy.
Others seemed less sanguine on the risks tied to cryptos, and pointed to the need for new regulations.
In separate remarks, Rebecca M. Nelson, specialist in international trade and finance with the Congressional Research Service, said “large-scale adoption of digital currencies could have a range of policy implications for the United States, including financial stability, consumer protections, AML/CFT, privacy considerations, and sanctions policy, among others.”
And in her own remarks, Prof. Mehrsa Baradaran of the University of California, Irvine School of Law, said that “there are inequalities and problems in the U.S. banking system and they must be fixed, but they must be fixed through democratic means. Cryptocurrencies want to take over where our public institutions have failed.” She noted that thus far no cryptocurrencies have reached the scale to become systemic threats, “but if their ambitions are believed, they will,” she told the committee, “and we have regulators for that.”
In questions and answers between lawmakers and the panelists, Sen. Mike Crapo of Idaho, chairman of the committee, asked Allaire how an effective regulatory framework might be developed while acknowledging the differences among digital asset and blockchain projects.
Allaire stated that there are over 2,300 digital assets available publicly, and said that new commodity monies need to regulated. “Regulations around the custody of digital assets is a really critical need,” he said.
In reference to the unbanked populations, Baradaran took issue with the idea that financial inclusion would be a hallmark of cryptos, asking “how does any digital based currency help when people are operating in cash?”