While a Senate Banking Committee hearing ostensibly focused on central bank digital currencies, bitcoin’s role in the ecosystem drew much of the attention.
U.S. lawmakers may be warming to a central bank digital currency (CBDC).
But while CBDCs drew some of the attention during Wednesday’s Senate Banking Committee hearing, the issues around bitcoin (BTC, +13.6%) drew far more attention from the group of lawmakers, led most vocally by Sen. Elizabeth Warren (D-Mass.).
The Subcommittee on Economic Policy, chaired by Warren is likely going to hold further hearings on the cryptocurrency sector as well, the lawmaker told Bloomberg.
The hearing presented one of the sharpest criticisms of bitcoin from U.S. lawmakers to date, even as smaller countries like El Salvador move to accept the cryptocurrency as legal tender. Warren’s views are likely a preview of how the issue may be discussed in other upcoming hearings, with counterparts in the House of Representatives holding a similar discussion next week.
Pros and cons
“If you want to send money to somebody else, digital currency can be easier and faster,” Warren said as she opened the hearing. “But in order for those advantages to be realized, the digital version needs to be secure, stable and accepted everywhere.”
In response, MIT Digital Currency Initiative Director Neha Narula pointed out that bitcoin’s value is not stable, pointing to the recent market drop of about 40%.
Warren then likened cryptocurrencies to wildcat notes issued in the past.
Sen. Elizabeth Warren says cryptocurrencies need more regulation.
“What’s happening right now…it’s a Wild West out there," she tells @TheStalwart https://t.co/hytD79iSTX pic.twitter.com/umEmcQ7la9
— Bloomberg TV (@BloombergTV) June 9, 2021
Warren contrasted with Sen. Cynthia Lummis (R-Wyo.), the pro-Bitcoin lawmaker who launched a Financial Innovation Caucus last month.
Lummis contrasted nations using bitcoin, naming El Salvador’s recent bill to adopt the cryptocurrency as legal tender, with the U.S.’s possible approach.
Warren also took aim at bitcoin and other proof-of-work cryptocurrencies’ environmental cost, saying it draws as much energy as The Netherlands, and could use as much energy as every other data center on Earth by the end of the year. (Whether bitcoin indeed uses an excess amount of energy compared to other technologies or monetary systems is hotly debated.)
CBDCs may be good
All four witnesses – Narula, Columbia Law’s Lev Menand, Stanford University’s Darrell Duffie and Digital Dollar Foundation Director Chris Giancarlo – argued that a well-built digital dollar would prove useful to the U.S.
Sen. Sherrod Brown (D-Ohio), who chairs the full Senate Banking Committee, expressed support for the idea of a Fed-issued CBDC on Wednesday, saying it could complement a no-fee bank account plan he has proposed.
“Americans shouldn’t have to pay exorbitant fees just to use the money they’ve already earned … a central bank digital currency can work with these no-fee accounts to make sure working families have access to the payment system and full participation in our economy,” he said. (Brown has also recently come out strongly against provisional banking charters granted to crypto-native firms.)
Arguments in favor of CBDCs varied. Menand said they could allow for large companies to find new ways of storing value.
“Offering non-defaultable money with no maximum amount would be stabilizing for the U.S. financial system in ways that people haven’t thought about,” Menand said, adding:
It would be very helpful to large companies to be able to hold very, very large cash balances in non-defaultable amounts and this could crowd out a lot of unsafe and unstable alternative products that those companies use right now.
China looms large
A digital dollar may also help the U.S. keep pace with China, which has been working on both its own Blockchain-based Services Network and a CBDC of its own, the digital yuan.
Giancarlo pointed to China’s work in arguing that a CBDC would help the dollar maintain its role as the global reserve currency.
“It’s only a matter of time before China will combine its latest blockchain technology with its new digital currency and its futures markets,” he said.
His remarks came a day after the full Senate passed the Endless Frontier Act, which if implemented as-is would require the federal government to study the national security implications of the digital renminbi, after an amendment sponsored in part by Lummis.