Non-crypto alternative payment systems pose a serious threat to U.S. security, according to testimony presented Tuesday at a U.S. House Financial Services Committee hearing on Homeland Security, International Development, and Monetary Policy. The alternative payments ecosystem must be viewed as a whole, and cryptography can enhance national security, speakers said.
Scott Dueweke, a fellow at the Wilson Center, told the US House Financial Services Subcommittee in written testimony: “By focusing only on cryptocurrencies, we risk missing the forest for the trees.”
Money services firms are highly regulated in the US, but those located outside the country may not be willing to comply with US requirements such as Know Your Customer/Anti-Money Laundering and may be outside the requirements of reports from the United States and other Western countries. Dueweke said.
Dueweke recommended instituting more open-source financial intelligence efforts as a means of countering the threat posed by SWIFT network alternatives created by Russia and China and other threats. He said:
“The US must follow the global technology leadership of our private sector by setting the standards for EPA internationally. Regardless of which direction the US government takes the digital dollar, […] cannot wait to engage the world through international organizations.”
While political goals inspire moves such as the formation of projects such as the Russia System for the Transfer of Financial Messages, a SWIFT alternative, and that country’s MIR bank card system, Dueweke said poverty is a primary driver in the expansion of the alternative payment ecosystem.
A good day to fulfill my duty as a citizen. pic.twitter.com/O0NlMHPR9d
— Scott Dueweke (@Scott_Dueweke) September 20, 2022
Dueweke said more than 700 million people lack adequate banking services and the situation is exacerbated by the practice of de-risking, in which Western banks stop providing correspondent services to banks in poor regions. While safety is the state’s motivation for the practice, there is often a profit motive behind it, Dueweke said.
Related: Global inflation rises: How stablecoins help protect savings
TRM Labs head of legal and government affairs Ari Redbord told the audience that US dollar-backed stablecoins could improve US national security. Because of the prestige and reliability of US fiat currency, Redbord said:
“One can imagine a world in which entrepreneurs create financial services products using a stable currency backed by US dollars, even when those products otherwise have little to do with the United States.”