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Government Needs to Enact Cryptocurrency Policy to Get Ahead on Global Competition, Experts Say

China is believed to be creating a central digital currency soon, as the U.S. lacks policy governing cryptocurrency.

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Melanie Teplinsky and Patrick McCarty

WASHINGTON, December 1, 2021 – Cryptocurrency experts say the federal government needs to implement more policy governing cryptocurrency to get in front of international competition in the space, as ransomware threats in the country continue to rise.

Patrick McCarty, professor at Catholic University of America Columbus School of Law, said at an event at the American University School of Law on November 23 that China’s central bank may create a central digital currency in the near future, and other nations’ central banks are likely to create their own digital currencies in response.

If the U.S. is to remain competitive on the international cryptocurrency scene, they say, the government must take key steps to solidify its digital currency systems.

Meanwhile, the Infrastructure Investment and Jobs Act, signed into law last month, establishes tax reporting requirements for cryptocurrencies.

McCarty said it is unclear whether Congress will take such steps, including clarifying whether cryptocurrencies are securities or commodities, and the Securities and Exchange Commission identifying which assets are considered securities to help with building digital currency systems in the U.S.

Melanie Teplinsky, professor at American University Washington College of Law, pointed out that even the major cryptocurrency players are asking for government regulations to be imposed on the industry.

Need better ransomware security

Teplinsky also said the U.S. must work to improve cybersecurity for cryptocurrency exchange.

With a four-times increase in the ransom that ransomware hackers received last year compared to 2019, she said shortages of available cybersecurity workers pose a very large problem.

She predicted there will be efforts to strengthen cybersecurity as the private sector seeks to work more collaboratively with government, and that active cyber defense through threat hunting will become more prevalent.

Teplinsky also stated that coordinated domestic and international policy responses to ransomware threats are specifically necessary, such as through diplomatic efforts to shut down foreign safe havens for hackers and common exchange regulations to ensure adherence to anti-money laundering rules.

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U.S. Must At Least Be ‘Fast Followers’ On Digital Currency, Panel Hears

Panelists discussed the benefits of a digital currency backed by the Federal Reserve.

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Dante Disparte, the chief strategy officer at digital financial services company Circle

WASHINGTON, May 24, 2022 – Industry and a House representative pushed the benefits of a central bank digital currency on Thursday, arguing that the regulated coin would help reduce banking costs and bring those who otherwise don’t use banks into the financial system.

Rep. Jim Himes, D-Conn., told an event hosted by the Center for Strategies and International Studies, that the digital coin, backed by other currencies, would bring in people who don’t use the banking system, which are about 5.4 percent of American households, according to the Federal Deposit Insurance Corporation. Roughly three times as many more are “underbanked,” referring to those who engage in costly nonbank services such as check cashing, money orders, payday lenders and international remittance services, the data show.

Himes, who said the U.S. is late to the digital currency game, added that by enabling these Americans to access this new digital system, this would lower prices for remittances and foster financial inclusion.

Separately, high-powered law firm Skadden, Arps, Slate, Meagher and Flom explained in a recent memo that a CBDC could provide “safer, faster and cheaper payments.”

Dante Disparte, the chief strategy officer and head of global policy at digital financial services company Circle, said for countries that depend on foreign remittances, this is a pathway for accelerating currency receipts and increasing settlements.

Digital currency an international race

“We are seeing things we could not do with our money as compared to if our money stayed in physical or analog form,” said Disparte, adding on the international front, this is akin to the “space race.”

A panel at an event hosted by the Center for Strategic and International Studies said earlier this month that the U.S. was falling behind China, a technology powerhouse, on the digital currency front.

“We don’t need to win every technological race out there, but we need to at least be fast followers,” said Himes. “Let us not find ourselves left behind on the innovation this could provide.” Disparte agreed with Himes that the U.S. is late to the game, but added his caution to the Federal Reserve’s cautionary approach in April to develop a potential CBDC for the U.S.

“Better get it right than to get it first or fast,” Disparte said.

Himes said his ‘elevator pitch for a CBDC rests on the benefits the digital dollar provides for innovation. In the United States’ potential development of a CBDC, the framework or result will not satisfy everyone, but it will be a platform of innovation.

Disparte added that digital dollar currencies such as “blockchain and stable coin will change the world when people start to think of it less as a digital challenge to the dollar and to the U.S. banking system, but rather as foundational technology” for U.S. innovation.

Editor’s note: A prior version of this story referenced a report by the law firm of Skadden Arps and said that the report had argued that a CBDC would allow for “safer, faster and cheaper payments.” The article has been revised to clarify that the Skadden report was not mentioned at the CSIS event, and to note that the the firm explained that a CBDC could allow for such “safer, faster and cheaper payments.”

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Finance Experts Weigh Merging Regulatory Agencies to Tackle Cryptocurrencies

‘A lot of regulatory gaps exist because we have two regulators.’

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Photo of Dawn Stump of CFTC’s Global Markets Advisory Committee from September 2019

WASHINGTON, May 19, 2022 – Crypto market observers are calling for a change in the regulatory system and laws to tackle the quickly growing world of digital currencies.

“We will need new substantial law,” Douglas Elliott, financial regulation expert and partner at consulting firm Oliver Wyman, said on a panel hosted by the Federalist Society on Tuesday. “There are too many ambiguities” with the current regulatory system, he added.

As state and federal governments consider how the growing crypto industry should be regulated, various crypto experts further argued Tuesday for a redesign of the regulatory structure, while others said there was no need for a consolidation of agencies.

Part of the reasoning behind the consolidation is confusion about whether cryptocurrencies are commodities or securities. As such, some are recommending a merger between the Securities and Exchange Commission and the Commodity Futures Trading Commission to handle the regulation of the digital money.

“A lot of regulatory gaps exist because we have two regulators,” said Michael Piwowar, executive director at the Milken Institute Center for Financial Markets, suggesting that Congress merge the two into a single regulatory body.

Thomas Vartanian, executive director at the Financial Technology and Cybersecurity Center, backed the agency merger idea. Vartanian explained that despite the existence of cryptocurrencies for fourteen years, crypto remains largely unregulated.

“Bottom line is we’ve built a business of ten trillion dollars with no regulation and that is a financial risk,” Vartanian said. “We are building a financial time bomb.”

But Dawn Stump, former commissioner of the CFTC, said the best way to address these gaps in crypto regulation is not to redesign the regulatory system.

In August 2021, Stump said in a public statement that due to public misunderstanding about the CFTC’s regulatory oversight authority, “there has often been a grossly inaccurate oversimplification offered which suggests these are either securities regulated by the Securities and Exchange Commission or commodities regulated by the Commodity Futures Trading Commission.”

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U.S. Facing Pressure from China as Digital Currency Adoption Debate Continues

Experts expressed concern about the U.S. falling behind China on the development of a central bank digital currency.

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Photo of Stephanie Segal from CSIS

WASHINGTON, May 12, 2022 – The U.S. is falling behind China as the central bank ponders whether to adopt a digital currency, according to observers.

“If other countries are innovating in a direction that could represent a technological advantage, and the US is not prepared to meet that challenge, the U.S. will be at a disadvantage,” said Stephanie Segal, senior associate of the economics program at the Center for Strategic and International Studies. She and other panelists were speaking at a CSIS event on Thursday.

Segal’s comments were supported by her colleagues at the center, which hosted panelists to discuss the promises and pitfalls of creating a central bank digital currency. These stablecoins, as their called, are backed by other currencies, including fiat money.

Matthew Goodman, senior vice president for economics at CSIS, noted there is a lot of uncertainty surrounding this debate on the digital dollar. While there has been interest in the U.S. for developing such a currency system, Goodman said the US is relatively “behind” and delayed in conversations about CBDC compared to countries like China.

According to Fariborz Ghadar, scholar and senior advisor at CSIS, developing a CBDC is no easy fix, and is a risky step. However the concern about China having already developed a CBDC is a “major triggering point” he said.

Steven Kamin, senior fellow at the American Enterprise Institute, called China’s development of CBDCs “nearly operational” and potentially problematic for the U.S., with China as a world leader in technology. Kamin was speaking at an AEI event in April.

Risks of such a digital currency

A CBDC has upsides, but also presents risks to privacy and cybersecurity, according to Segal. She said a CBDC could create fear about data collection methods, regarding who has access to the data, and wonders if privacy protections would be provided.

Additionally, instead of having various intermediary points of security with the current banking system, a central bank digital currency would only have one point of security, making cybersecurity more vulnerable to threats, according to Segal.

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