The panelists discussed regulatory hurdles and potential alternative solutions for unbanked and underbanked consumers.
The Senate Banking Committee questioned three industry participants and academics on the current state, and future of, cryptocurrencies and applicable regulations. According to the panelists, a more globally uniform approach to cryptocurrency governance would facilitate innovation while protecting consumers and investors, and U.S. law must evolve to keep pace with the evolving digital asset market. The panelists agreed that the future is here and that lawmakers should continue to push for regulations that address the unique features of cryptocurrencies and the development of blockchain technology.
Cryptocurrency evolution. According to Jeremy Allaire, co-founder and chairman of Circle Internet Financial, consumers with access to traditional financial services face fees and excessive delays in using their money. The existing financial system is built on legacy technology and rules from the last century, which does not necessarily serve financial services innovation, he noted. In the near future, sovereign and non-sovereign global digital currencies will proliferate, and the markets will see a shift to a preference for global basket currencies for settlements and value storage, Allaire opined. Commercial relationships will increasingly be mediated by smart contracts running on public blockchains, and value exchanges will become free services on the internet, restoring money to the real economy, he said.
Senator Brian Schatz (D-Hawaii) noted that industry leaders, lawmakers, and regulators must remain "clear-eyed" about problems that cryptocurrencies could create. However, Allaire noted, the result of the uncertainty of regulation in the U.S. has led many digital asset companies to domicile in other countries, particularly those with comprehensive regulatory frameworks for these new types of financial services. In response to Banking Committee Chairman Mike Crapo (R-Idaho), he noted that other jurisdictions tailor the definition of "cryptocurrency" and opined that digital assets should be regulated but separately from traditional financial regulation.
"Without a sound, pragmatic, and agile national policy framework for digital assets, I am concerned that the United States will not be the world’s leader in this critical new technology," Allaire stressed.
Global approaches. Rebecca Nelson of the Congressional Research Service echoed these concerns, highlighting the "patchwork" of regulations in the U.S. and various approaches to regulation around the world. Cryptocurrencies span national borders, she noted, and some jurisdictions are actively seeking to become cryptocurrency hubs by adopting specific regulations designed to provide regulatory certainty. However, Nelson explained, some governments have banned cryptocurrencies and related activities. Cryptocurrencies could potentially revolutionize the financial industry and increase efficiency while reducing transaction costs, she noted, but many are considered volatile and could be used to facilitate illicit transactions. Major regulatory differences among countries can create additional instability and facilitate regulatory arbitrage, Nelson stated. The G-7 and G-20 finance ministers and central bank governors have agreed that international coordination on cryptocurrencies is necessary to ensure effective regulation and to monitor the risks associated with cryptocurrencies, she explained.
Alternative solutions. Mehrsa Baradaran, professor at the University of California Irvine School Of Law, opined that cryptocurrency is not the best solution to problems associated with financial inclusion for the unbanked or underbanked. If problems are arising in this realm, the U.S. Constitution has authorized only Congress to change the currency laws and institutions, she stated. The payments system should be available to all, but low-income families spend approximately 10 percent of their income in fees paid to alternative financial service providers, as banks tend to avoid small accounts, according to Baradaran. This problem could be solved by offering a direct checking account linked to a central payment system through the post office, she stated.
Cryptocurrency as an alternative for the unbanked or underbanked would only work if everyone transitions to the system, Baradaran explained. In response to a suggestion from Senator Catherine Cortez Masto (D-Nev), she stressed that rather than creating a new currency on a new platform and "outsourcing" payments systems to the technology sector, expanding access to existing payments systems would allow for immediate inclusion. Fundamental financial risks do not change with a blockchain, according to Baradaran; it could still lead to systemic risk, fraud, and criminal activity, she opined.
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