Crypto Politics Can Protect Dollar Dominance

If the United States is to maintain economic and political leadership in the 21st century, one thing it cannot do is lose control of the international arena.

That’s the general message that emerged from a Sept. 20 House Financial Services Committee hearing on the national security impacts of the growing use of alternative payment systems.

Calling payment systems “the cornerstone of the financial industry,” Rep. Josh Gottheimer (DN.J.), chair of the Subcommittee on National Security, International Development, and Monetary Policy, warned that “allies and adversaries are taking critical steps to -dollarize their economies, develop new methods to facilitate cross-border money transfers and control the plumbing of global finance.

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As a result, he added, “In the years to come, global leadership in the 21st century will be determined in part by the oversight and influence of the payments industry.”

The audience was dominated by discussion of central bank digital currencies (CBDCs) — including the Chinese e-CNY, or digital yuan, and US digital dollar — and cryptocurrencies.

APEs are multiplying

But it’s a mistake to think of them as the only alternative payments ecosystems (APEs), said Scott Dueweke, a research fellow on the issue at the Wilson Center, a quasi-government think tank.

In addition to familiar systems like PayPal and Western Union, there are Russian preferred alternatives like WebMoney and Perfect Money, WeChat Pay and AliPay of more than 45 trillion dollars in China, mobile payment systems, transfer systems funds and stored-value card schemes.

“Focusing solely on cryptocurrency risks misunderstanding this thriving global ecosystem,” Dueweke said. “I define this as an ecosystem because they’re all connected through hundreds of virtual currency exchanges, converting one alternative payment system to another and another, or to and from fiat,” often with anonymity, or a poor or even non-existent knowledge of your client (KYC).

EPAs have “exploded in popularity and viability, woven into the global social fabric… [providing] a growing and capable set of interconnected non-bank financial channels that may or may not touch the traditional financial system,” Dueweke said.

This bank-centric financial system is seeing the ground shift below, he added, “as new Chinese and Russian payment systems bypass SWIFT and other Western-dominated financial backbones.” [that are] is no longer the domain of FinTech startups nor simply limited to cryptocurrencies”, allowing nation states to play “the big game on this new ground”.

Related: House Bill would ban algorithmic stablecoins for 2 years

The central question

Yet for all of this, Dueweke has consistently called CBDCs the biggest threat to American financial might.

“If China, alone or with [Brazil, Russia and India]is able to combine their unencrypted virtual currencies with a viable CBDC,” he told the subcommittee there will soon be “a real issue of financial and national security beyond your ability to regulate.”

For the United States, progress on a CBDC is “particularly important” because it’s where China can “undermine the dominance of the dollar,” said Carla Norrlöf, a senior researcher at the Atlantic Council who studies the role What does economics play in geopolitics?

At the same time, she added, that doesn’t mean the US needs a digital dollar at this point because China isn’t yet in a position to compete.

“For the Chinese, however, having a central bank digital currency is pretty crucial in order to get anywhere near where the United States is today,” Norrlöf said.

Part of the solution

Far from being part of the problem, cryptocurrencies can be part of the solution, Jonathan Levin, co-founder of blockchain data firm Chainalysis, told the hearing.

Saying that China has made “enormous progress” in this area over the past 15 years and is now poised to export these domestic payment systems through investment in foreign FinTech companies and its upcoming CBDC, Levin argued that “cryptocurrencies actually mark the first innovation that is consistent with American values ​​and poses a real competitive threat to China’s financial innovation strategy and its attempt to own the financial rails of the 21st century.

Although bitcoin and its successors are considered anonymous, they are more accurately pseudonymous, with every transaction recorded immutably on a publicly accessible blockchain.

See also: DOJ Seeks Double Jail Sentence for Money Transmitting Crimes

Saying that in many cases it is easier to investigate “the illicit use of cryptocurrencies than other traditional means of payment or some of the alternative payment systems”, Levin pointed to the recent help of his company in a government investigation that seized $30 million worth of stolen cryptocurrency from North Korean hackers.

“The same qualities that make blockchain such a force for good – permissionless, decentralized, cross-border transfer of value at internet speeds – also make it attractive to illicit actors who want to move funds quickly across borders. added Ari Redbord, former prosecutor and head of legal and government affairs at TRM Labs, a blockchain intelligence firm.

“But the reality is that we’ve never had this much visibility into financial flows,” he said. “In many cases, it is actually easier to investigate cases involving the illicit use of cryptocurrencies than other traditional payment methods or some of the alternative payment systems we talk about.”

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See more in: Atlantic Council, Chainalysis, Congress, cryptocurrency, digital currency, e-CNY, House Financial Services Committee, news, regulations, TRM Labs, Wilson Center

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Crypto Politics Can Protect Dollar Dominance

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