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US lawmakers could turn to a central bank digital currency (CBDC).
But while the CBDCs garnered some of the attention during Wednesday’s Senate Banking Committee hearing, bitcoin-related issues garnered much more attention from the group of lawmakers, led very clearly by Senator Elizabeth. Warren (D-Mass.).
The economic policy subcommittee, chaired by Warren, will likely also hold other hearings on the cryptocurrency industry, the lawmaker told Bloomberg.
The hearing presented one of the most vocal criticisms of bitcoin from U.S. lawmakers to date, even as smaller countries like El Salvador move to accept cryptocurrency as legal tender. Warrens’ views are likely a glimpse of how the issue could be discussed in further hearings to come, with House of Representatives counterparts holding a similar discussion next week.
Advantages and disadvantages
If you want to send money to someone else, digital currency can be easier and faster, Warren said opening the hearing. But for these benefits to materialize, the digital version must be secure, stable, and accepted everywhere.
In response, Neha Narula, director of the MIT Digital Currency Initiative, pointed out that the value of bitcoin is not stable, pointing to the recent market decline of around 40%.
Warren then compared cryptocurrencies to wild banknotes issued in the past.
Warren’s perspective is markedly different from that of Senator Cynthia Lummis (R-Wyo.), The pro-bitcoin lawmaker who launched a Financial Innovation Caucus last month.
Lummis compared nations using bitcoin, naming El Salvador’s recent bill to adopt cryptocurrency as legal tender, with the possible approach of the United States.
Warren also took aim at the environmental cost of bitcoin and other proof-of-work cryptocurrencies, saying it consumes as much energy as the Netherlands and could use as much energy as any other data center on Earth by the end of the year. (Whether bitcoin actually uses an excessive amount of energy compared to other technologies or money systems is hotly debated.)
CBDCs can be good
The four witnesses Narula, Columbia Laws Lev Menand, Darrell Duffie of Stanford Universities, and Digital Dollar Foundation Director Chris Giancarlo argued that a well-built digital dollar would be useful in the United States.
Sen. Sherrod Brown (D-Ohio), who chairs the entire Senate Banking Committee, on Wednesday expressed support for the idea of a CBDC issued by the Federal Reserve, saying it could complement a chart of accounts banking fees that he offered.
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 accounts at no cost to ensure that working families have access to the payment system and participate fully in our economy, he said. (Brown has also recently spoken out strongly against interim banking charters granted to crypto-native firms.)
The arguments in favor of CBDCs varied. Menand said they could enable large companies to find new ways to store value.
Offering non-refundable money with no maximum amount would stabilize the U.S. financial system in a way people haven’t thought of, Menand said, adding:
It would be very helpful for large companies to be able to hold very, very large cash balances in non-defaulting amounts, which could crowd out many of the dangerous and unstable alternative products that these companies are currently using.
China occupies an important place
A digital dollar could also help the United States keep pace with China, which has worked on both its own blockchain-based service network and its own CBDC, the digital yuan.
Giancarlo pointed out that China’s work in arguing that a CBDC would help the dollar maintain its role as the world’s reserve currency.
“It is only a matter of time before China combines its latest blockchain technology with its new digital currency and futures markets,” he said.
His remarks came a day after the full Senate passed the Endless Frontier Act, which, if implemented as is, would force the federal government to consider the implications of the digital renminbi on national security, after a amendment sponsored in part by Lummis.
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