Experts think US moving too slow in developing central bank digital currency

The former Commodity Futures Trading Commission chair thinks the United States isn't moving fast enough in establishing a plan to modernize its payment system.

Experts think US moving too slow in developing central bank digital currency

The United States is not moving fast enough in establishing a plan to modernize its payment system, according to former Commodity Futures Trading Commission chair Tim Massad.

Massad said in a joint hearing with the Joint Economic Committee on Wednesday that a central bank digital currency, or CBDC, might provide a solution to improve U.S. payments systems, which he described as "slow" and "expensive." However, despite stablecoins being applicable for this purpose, they also pose significant risks to U.S. regulators, according to the former CFTC chair.

As an example of how the US payment system should be modernized, Massad cited people who use stablecoins like Tether to move funds between exchanges.

Nevertheless, he explained that the stablecoin issuer's reserves were likely not invested in "highly liquid assets" such as the dollar, so their funds were not insured.

According to the former CFTC chairman, his recommendation would be to adopt bank-style regulations, but also prevent issuing firms from making loans, so that deposit insurance would not be needed.

"It is often cited that crypto assets, stablecoins, and digital assets in general have the potential to achieve greater financial inclusion, "Massad said. "The need for better financial access through other means is too great. We must act now."

Also in attendance at the hearing was Coin Center research director Peter Van Valkenburgh, who called stablecoins an interesting area within the crypto space, but expressed concern over the lack of regulatory clarity for issuers.

Some stablecoin issuers may be violating the law, according to Van Valkenburgh, who added:

In addition, stablecoin issuers are regulated, while creating a federal regulatory authority for stablecoins is also possible. The problem there isn't a legal one - it's an enforcement one.

Van Valkenburgh and Massad both discussed a report by the President's Working Group on Financial Markets that recommended stablecoin issuers be supervised by the government, similar to how banks are monitored. Stablecoins present potential prudential risks that require legislation to be fully addressed.