Banks, credit card companies and digital payments processors are nervously watching the push to create an electronic alternative to the paper bills Americans carry in their wallets. The chairman of the U.S. Securities and Exchange Commission also has concerns, calling the burgeoning cryptocurrency market “rife with fraud, scams and abuse.”
“Right now, we just don’t have enough investor protection in crypto,” Gary Gensler said at the Aspen Institute’s forum on security. “Frankly, at this time, it’s more like the Wild West.”
With the market for cryptocurrencies at an estimated $1.8 trillion, the federal government wants a piece of the Wild West, albeit in different ways.
With cryptocurrency, digital cash moves from one account to another. While this is similar to how most money already works — the majority of U.S. dollars are just digital entries in bank accounts — the new currency could potentially avoid the go-between of a commercial bank or credit-card network.
The European Central Bank has begun a two-year investigation into the feasibility of a digital version of the euro. While that could be at least five years away, other countries already have taken the plunge. Bahamas launched a digital currency last year, while Brazil, China, Sweden, Japan and Russia have begun experimenting.
All told, there are thousands of cryptocurrencies, which are, for now, mostly highly speculative investments. That’s why the U.S. Federal Reserve is moving cautiously — and rightfully so. It is working with the Massachusetts Institute of Technology to build a technology platform for a hypothetical digital dollar pegged to the U.S. dollar, but chair Jerome Powell has said it is “far more important” to get a digital dollar right than it is to be fast.
“I think that’s one of the stronger arguments in its favor — that … you wouldn’t need stablecoins, you wouldn’t need cryptocurrencies if you had a digital U.S. currency,” Powell said.
Lawmakers, however, are counting on cryptocurrency to help pay for the $1 trillion infrastructure bill the Senate approved last week by imposing tax-reporting requirements for cryptocurrency brokers. The plan could raise about $28 billion in revenue over 10 years, congressional accountants estimate.
“You’ve got federal agencies not talking on the same page,” said Suzanne Lynch, a professor at Utica College who focuses on financial crime. “It’s so gray right now.”
In the end, any digital currency must be able to meet consumers’ needs while helping prevent illegal activity, such as money laundering, and must not have an adverse impact on financial stability and monetary policy.
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