The U.S. Congressional Subcommittee on Monetary Policy and Trade discussed major questions around digital currencies in a hearing today, July 18. The hearing, entitled “The Future of Money: Digital Currency,” considered potential domestic and global implementations of cryptocurrencies.
At the hearing, the Subcommittee discussed the deployment of cryptocurrency and its underlying technology, blockchain, by central banks, arguing whether central banks should introduce a central bank digital currency (CBDC).
Addressing this point, Rodney Garratt, a professor of economics at the University of California, Santa Barbara, claimed that the banks have to decide whether they want “to withdraw completely from providing a payment device for general public,” or whether they prefer to adopt one of sorts of digital alternative. Which, in turn, could be “some form of crypto.”
Alex Pollock, senior fellow at the R Street Institute, argued that “to have a central bank digital currency is one of the worst financial ideas of recent times, but still it’s quite conceivable...” Pollock said that central bank digital currencies would only increase the size, role, and power of the bank, adding that the Federal Reserve adopting a CBDC would result in it become the “overwhelming credit allocator of the U.S. economic and financial system.” He continued:
“I think we can we can safely predict that its credit allocation would unavoidably be highly politicized and the taxpayers would be on the hook for its credit losses. The risk would be directly in the central bank.”
Pollock explained that if fiat money becomes digitized, its nature will not be changed, and will still be issued by a central bank. While Pollock can envision some type of private digital currency backed by assets, he concluded that it will not be “private fiat currency” like Bitcoin. In Pollock’s view, cryptocurrencies are essentially the same as scrip.
When Subcommittee chairman Andy Barr asked whether cryptocurrencies can function as a money substitute, Garratt claimed that “in terms of a conceptual idea” crypto is a currency “at some extent,” but not a “very good one” at the moment. He said it does not effectively operate as a medium of exchange due to its price volatility. The panelist further suggested, that the volatility might start to decline if the adoption rate increases, claiming that “people have to start using it as transactions.”
Subcommittee vice chairman Roger Williams asked the panel what the main impediments are to the adoption of crypto and blockchain, and what the U.S. Congress can do about them. Norbert Michel, director for the Center for Data Analysis at the Heritage Foundation, pointed out the capital gains tax (CGT) as the biggest impediment, due to the complex tracking process in monitoring gains and losses.
Michel also noted the importance of a prudent regulatory approach, meaning that financial regulators should not apply stringent regulations to crypto just because it can be an instrument for illegal activity, such as money laundering.
"Yes it is true that criminals have used bitcoin, but it's also true that criminals have used airplanes, computers, and automobiles. We shouldn't criminalize any of those instruments simply because criminals used them."
Congressman Brad Sherman, who has previously expressed a highly critical position toward cryptocurrencies, maintained his aggressive stance, stating that he would prefer that U.S. persons were banned outright from buying or mining cryptocurrencies.