[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


                      UNDER THE RADAR: ALTERNATIVE
                    PAYMENT SYSTEMS AND THE NATIONAL
                    SECURITY IMPACTS OF THEIR GROWTH

=======================================================================

                             HYBRID HEARING

                               BEFORE THE

                   SUBCOMMITTEE ON NATIONAL SECURITY,

                       INTERNATIONAL DEVELOPMENT

                          AND MONETARY POLICY

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           SEPTEMBER 20, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-98
                           

[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                             __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
48-838 PDF                    WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     TREY HOLLINGSWORTH, Indiana
SEAN CASTEN, Illinois                ANTHONY GONZALEZ, Ohio
AYANNA PRESSLEY, Massachusetts       JOHN ROSE, Tennessee
RITCHIE TORRES, New York             BRYAN STEIL, Wisconsin
STEPHEN F. LYNCH, Massachusetts      LANCE GOODEN, Texas
ALMA ADAMS, North Carolina           WILLIAM TIMMONS, South Carolina
RASHIDA TLAIB, Michigan              VAN TAYLOR, Texas
MADELEINE DEAN, Pennsylvania         PETE SESSIONS, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   RALPH NORMAN, South Carolina
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
           Subcommittee on National Security, International 
                    Development and Monetary Policy

                  JIM A. HIMES, Connecticut, Chairman

JOSH GOTTHEIMER, New Jersey, Vice    ANDY BARR, Kentucky, Ranking 
    Chair                                Member
MICHAEL SAN NICOLAS, Guam            FRENCH HILL, Arkansas
RITCHIE TORRES, New York             ROGER WILLIAMS, Texas
STEPHEN F. LYNCH, Massachusetts      LEE M. ZELDIN, New York
MADELEINE DEAN, Pennsylvania         WARREN DAVIDSON, Ohio
ALEXANDRIA OCASIO-CORTEZ, New York   ANTHONY GONZALEZ, Ohio
JESUS ``CHUY'' GARCIA, Illinois      PETE SESSIONS, Texas
JAKE AUCHINCLOSS, Massachusetts
                           
                           
                           C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    September 20, 2022...........................................     1
Appendix:
    September 20, 2022...........................................    31

                               WITNESSES
                      Tuesday, September 20, 2022

Dueweke, Scott, Global Fellow, Science and Technology Innovation, 
  the Wilson Center..............................................     6
Jin, Emily, Research Assistant for the Energy, Economics, and 
  Security Program, Center for a New American Security...........     5
Levin, Jonathan, Co-Founder and Chief Strategy Officer, 
  Chainalysis Inc................................................    11
Norrlof, Carla, Nonresident Senior Fellow, Economic Statecraft 
  Initiative, GeoEconomics Center, Atlantic Council..............     8
Redbord, Ari, Head of Legal and Government Affairs, TRM Labs.....    10

                                APPENDIX

Prepared statements:
    Dueweke, Scott...............................................    32
    Jin, Emily...................................................    33
    Levin, Jonathan..............................................    50
    Norrlof, Carla...............................................    67
    Redbord, Ari.................................................    88

              Additional Material Submitted for the Record

Dueweke, Scott:
    ``Black Swans and Green Fields: Exploring the Threat and 
      Opportunity of the Alternative Payments Ecosystem to the 
      West,'' dated August 2022..................................   101
Jin, Emily:
    Written responses to questions for the record from Chairwoman 
      Waters.....................................................   121
Norrlof, Carla:
    Written responses to questions for the record from Chairwoman 
      Waters.....................................................   138
Redbord, Ari:
    Written responses to questions for the record from Chairwoman 
      Waters.....................................................   151

 
                      UNDER THE RADAR: ALTERNATIVE
                        PAYMENT SYSTEMS AND THE
                       NATIONAL SECURITY IMPACTS
                            OF THEIR GROWTH

                              ----------                              


                      Tuesday, September 20, 2022

             U.S. House of Representatives,
                 Subcommittee on National Security,
                          International Development
                               and Monetary Policy,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:07 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jim A. Himes 
[chairman of the subcommittee] presiding.
    Members present: Representatives Himes, Gottheimer, San 
Nicolas, Auchincloss; Barr, Hill, Williams of Texas, Davidson, 
Gonzalez of Ohio, and Sessions.
    Ex officio present: Representative Waters.
    Also present: Representative Taylor.
    Chairman Himes. The Subcommittee on National Security, 
International Development and Monetary Policy will come to 
order.
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time. Also, without 
objection, members of the full Financial Services Committee who 
are not members of this subcommittee are authorized to 
participate in today's hearing.
    I would like to welcome today's witnesses.
    We will be doing this as a hybrid hearing, so members will 
be both physically present as well as piping in on the screen, 
which is visible to us behind you. It should be visible on 
either side. We beg your indulgence for any technical issues 
that may pose, but we do anticipate a good dialogue, both in 
person and remotely, today.
    Today's hearing is entitled, ``Under the Radar: Alternative 
Payment Systems and the National Security Impacts of Their 
Growth.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    Payment systems are the lifeblood of the financial sector. 
They make sure that banks, businesses, and individuals around 
the globe can send and receive money without delay and keep the 
world's economies connected.
    The United States and the U.S. dollar in particular occupy 
a privileged role in the payments sector. As the world's 
primary reserve currency, our dollar is the most widely used in 
global trade and cross-border payments. This gives U.S. 
authorities who are tasked with oversight immense capabilities 
to impose financial sanctions and isolate regimes who act 
against broadly-shared international values.
    Earlier this year, we saw how U.S. dollars and the payments 
system can be leveraged to respond to bad behavior by our 
adversaries. After Russia invaded the sovereign nation of 
Ukraine, the United States and our allies acted swiftly to 
counter Putin's attack by limiting the Russian government's 
ability to obtain U.S. dollars, and restricting Russian banks 
from accessing vital international financial messaging systems.
    As a result, the Russian economy began to erode, and Putin 
and his cronies became international pariahs. The world was 
reminded how U.S. leadership and the U.S. dollar can tighten 
the screws on governments that violate longstanding norms.
    But the strengths and privileges of the dollar are far from 
uncontested. Around the globe, allies and adversaries alike are 
taking critical steps to de-dollarize their economies, to 
develop new methods to facilitate cross-border money transfers, 
and to control the plumbing of global finance.
    In some cases, these alternative payment systems are 
proactive measures taken by governments to mitigate the 
expected brunt of economic sanctions and international 
vilification. In other instances, these systems illustrate the 
ways that foreign regimes expand their influence in the global 
payment sector, weaken U.S. competitiveness, and jeopardize the 
era of dollar dominance.
    These systems each pose unique challenges that will require 
U.S. regulators and the international community to refine our 
sanctions strategies, closely monitor worldwide financial 
trends, and keep pace with the rapidly-evolving payment 
ecosystem to make sure that we are not caught flatfooted.
    Our panel this morning will help us understand these 
challenges and highlight how Congress and the Administration 
can prepare for alternative payment systems to grow beyond our 
financial integrity capabilities and compromise our national 
security. In order for the U.S. to retain its status as a 
leader in the international payments arena, we must be ready to 
overcome the obstacles that await us, both in the near term and 
in the years ahead.
    Global leadership in the 21st Century will be determined in 
part by the oversight and influence of the payment sector. 
Today I look forward to learning how the United States can best 
preserve and maintain its status in the global payment system, 
defend against threats presented by alternative payment 
systems, and give policymakers and national security officials 
the right tools to defend our economy against the threats that 
lie ahead.
    With that, I would like to again welcome our witnesses and 
thank them for helping us to shed light on this important 
topic.
    I now recognize the ranking member of the subcommittee, Mr. 
Barr, for 5 minutes for an opening statement.
    Mr. Barr. Thank you, Mr. Chairman.
    And I join the Chair in welcoming our panelists to this 
hearing.
    The rise of alternative payment systems abroad, 
particularly in China, has deepened Congress' interest in 
ensuring that our own payments infrastructure remains 
preeminent. Beijing's development of a digital RMB has also 
raised the specter of China removing itself and other countries 
from a dollar-based financial system, with uncertain effects 
for our national security.
    I look forward to hearing our witnesses delve into these 
issues today, but let me offer some preliminary thoughts on how 
we can meet the rise of new payment technologies promoted by 
U.S. rivals.
    First, Congress must foster innovation in our own backyard 
so that dollar payments are quick, efficient, and secure. This 
means continually upgrading our payment capabilities, not 
resting on our laurels.
    Already, the Federal Reserve's Fedwire system processes 
nearly $4 trillion a day, with double-digit annual growth in 
the volume and value of its transfers. Next year's rollout of 
FedNow should further facilitate dollar payments for 
individuals and businesses.
    Committee Republicans have been pushing the Fed to 
prioritize cybersecurity in order to defend these critical 
functions. We have also underscored the importance of data 
privacy and cooperation with commercial banks as the Fed 
considers concepts for a central bank digital currency (CBDC).
    If the world is to continue opting for the dollar, we must 
reject the Chinese model of using financial technology as a 
tool for government surveillance and control. We cannot and we 
should not compete with China by becoming more like China.
    The private sector is also key. While massive foreign 
players like Alipay and WeChat loom large, the United States 
and Europe have launched a diverse array of new payment 
services, from fintech startups to major technology companies. 
I am confident that our commitment to competition, free 
enterprise, and the rule of law will point the way for global 
standards and payments, not the heavy hand of dictatorships 
like China.
    Second, it is essential for Washington to stop politicizing 
the institutions that have historically made our financial 
system the envy of the world. Whether it is the Federal 
Reserve, the Securities and Exchange Commission, banks, or 
Silicon Valley, we must resist the call of activists who want 
to mobilize them against anyone who doesn't share their 
beliefs. See: ESG.
    Just last week, for instance, we held a hearing on de-
risking in the Caribbean, where our committee was able to 
examine how law-abiding businesses in the region are being 
denied financial services like correspondent banking.
    This is a real problem. I only wish our Majority would show 
a similar concern when their supporters demand that financial 
institutions pick and choose customers here at home based on 
environmental and social litmus tests. In the long term, 
infecting our financial system with political agendas of the 
day will only make other countries' payment services and 
currencies more attractive.
    Finally, the effectiveness of our sanctions and anti-money 
laundering regime rests on the dominance of the dollar. As long 
as this is the case, foreign countries' attempts to evade U.S. 
law enforcement will be limited. Just ask the Russian Central 
Bank or cryptocurrency exchanges abroad that have been targeted 
by the Office of Foreign Assets Control (OFAC).
    The dollar is king because its value is market-determined; 
because we support free capital flows; because our legal system 
protects investors, rather than preying on them. Dollars give 
you a claim to countless high-quality goods and services 
produced by a $25 trillion economy.
    Ultimately, it is economic dynamism and our responsible 
stewardship of the financial system that will stymie our 
adversaries' efforts to escape the dollar's reach, as long as 
we don't stray off course.
    China, for its part, is running out of feet to shoot. Its 
zero-COVID policy is producing urban dystopias throughout that 
country. Its real estate sector is teetering. And Beijing has 
shackled itself to Moscow, while the West stands united behind 
Ukraine. These aren't the moves of a regime that deserves 
greater sway over the world's financial architecture. And that 
is a bipartisan sentiment, fortunately.
    While China is betting on its financial governance as the 
wave of the future, global markets have been betting on ours. 
We must do everything we can to keep it that way.
    I look forward to our witnesses' testimony, and I yield 
back.
    Chairman Himes. I thank the ranking member. I now recognize 
the Chair of the full Financial Services Committee, the 
gentlewoman from California, Chairwoman Waters, for 1 minute.
    Chairwoman Waters. Thank you very much, Chairman Himes, for 
convening this hearing on the current and future national 
security challenges related to the growth of alternative 
payment systems. These systems can drive inclusion and offer 
convenience, but because they are generally outside of the 
western Federal financial system, they also offer opportunities 
for sanctions evasion and other financial crimes. Further, they 
rival U.S. dollar-led trade and payment systems, potentially 
undermining the strength of the dollar and our ability to 
leverage tools like economic and trade sanctions.
    I look forward to hearing from today's witnesses on what 
Congress needs to consider regarding this growing concern.
    I yield back.
    Chairman Himes. I thank the Chair of the Full Committee, 
and turn now to our witnesses.
    Today, we welcome the testimony of our distinguished 
witnesses: Emily Jin, a research assistant for the Energy, 
Economics, and Security Program at the Center for a New 
American Security; Scott Dueweke, a global fellow for science 
and technology innovation at the Wilson Center; Dr. Carla 
Norrlof, a nonresident senior fellow at the Atlantic Council's 
GeoEconomics Center; Ari Redbord, the head of legal and 
government affairs at TRM Labs; and Jonathan Levin, the co-
founder and chief strategy officer at Chainalysis.
    Witnesses are reminded that their oral testimony will be 
limited to 5 minutes. You should be able to see a timer that 
will indicate how much time you have left. I would ask that you 
be mindful of the timer so that we can be respectful of both 
the other witnesses' and the committee members' time.
    And without objection, your written statements will be made 
a part of the record.
    Ms. Jin, you are now recognized for 5 minutes for an oral 
presentation of your written testimony.

  STATEMENT OF EMILY JIN, RESEARCH ASSISTANT FOR THE ENERGY, 
  ECONOMICS, AND SECURITY PROGRAM, CENTER FOR A NEW AMERICAN 
                            SECURITY

    Ms. Jin. Chairwoman Waters, Ranking Member McHenry, 
Subcommittee Chairman Himes, Subcommittee Ranking Member Barr, 
and distinguished members of the subcommittee, thank you for 
the opportunity to testify before you today and for your 
interest in the important policy area of payment systems and 
national security. It is an honor to share the panel with my 
fellow witnesses.
    I study China's alternative payment systems and rails, 
principally the Cross-Border Interbank Payment System (CIPS), 
and the digital RMB, or eCNY, in the context of great-power 
competition between the United States and China.
    My testimony addresses China's progress in building out 
these two alternative payment systems, the implications of 
growth in these payment systems, and recommends a policy 
posture to prepare America for a future where alternative 
payment systems are more prominent than they are today.
    First, on CIPS, we should understand what CIPS is and what 
it is not. It is an RMB clearing and settlement mechanism that 
facilitates cross-border RMB transactions. It is not China's 
version of the Society for Worldwide Interbank Financial 
Telecommunications (SWIFT)--yet--as it does not provide 
messaging services broadly to global financial institutions.
    Second, on the digital RMB, the digital RMB, or the eCNY, 
is the digital version of the Chinese national currency, the 
RMB. It is a national payment structure that is mostly domestic 
and retail which has been implemented across all levels of 
Chinese society. It, however, increasingly has potential cross-
border applications and implications.
    At their current stages, these two alternative payment 
systems are not threats to the mainstream financial system. 
However, they are growing in technical sophistication and 
domestic adoption. CIPS use is on an upward trajectory, and 
digital RMB pilot projects are penetrating through all levels 
of Chinese society.
    Under an ambitious Chinese leadership that envisions more 
prominent roles for Chinese institutions and international 
finance, these systems could gain traction internationally and 
scale up accordingly, with the right geopolitical conditions, 
over the long run.
    In such a scenario, Chinese alternative payment systems and 
coalitions of alternative payment systems could eventually 
erode the ability of the United States to use financial 
sanctions as a deterrent or a punishment in the event of a 
Taiwan crisis or other geopolitical scenarios.
    Moreover, these payment systems could challenge the 
institutions under the current financial order. The United 
States, as a leader in the global financial order, needs to 
respond to this long-term risk today.
    The United States cannot control the way other countries 
are developing their systems. The United States can, however, 
craft sound policy to influence the march of global payments 
innovation and maintain U.S. leadership in the international 
financial system.
    Out of my list of recommendations, I will highlight three.
    First, the United States Government should support 
institutions that conduct research on America's and China's 
financial statecraft. The Department of the Treasury, the 
Federal Reserve Board of Governors, and the Federal Reserve 
Banks should designate units of analysts to conduct annual 
assessments of currency flows in the global payment systems. 
These analytical units should monitor the use, growth, and 
connectivity of these alternative payment systems.
    Second, Congress should consider mandating the drafting of 
a long-term strategy document, updated every 2 to 4 years, to 
signal the direction of U.S. financial statecraft and the 
United States' thinking for the future of the dollar. This will 
not only instill confidence in the American private sector that 
U.S.-dollar preeminence is a priority, but it would also 
provide clarity to our allies and partners on the United 
States' financial statecraft posture.
    Third, the Treasury Department should develop policy 
measures to prevent sanctioned entities from taking advantage 
of alternative payment systems. There should be predetermined 
policy triggers. If there is proof that Chinese financial 
institutions cleared and settled transactions with sanctioned 
individuals or organizations through CIPS, the Treasury's 
Office of Foreign Assets Control (OFAC) should consider 
financial sanctions or secondary sanctions on financial 
institutions that facilitated these transactions. The 
Department of the Treasury should study the impact of such 
sanctions prior to levying such tools, given the high 
likelihood of knock-on effects from such actions.
    In summary, I recommended a policy posture that is 
informed, anticipatory, but not overly alarmist. After asking 
the question on how alternative payment systems are developing, 
the United States should focus on how it can maintain 
leadership in international finance and continue to exert 
influence in the global financial economic system to serve 
American national interests.
    Thank you, and I look forward to your questions.
    [The prepared statement of Ms. Jin can be found on page 33 
of the appendix.]
    Chairman Himes. Thank you, Ms. Jin.
    Mr. Dueweke, you are now recognized for 5 minutes.

    STATEMENT OF SCOTT DUEWEKE, GLOBAL FELLOW, SCIENCE AND 
            TECHNOLOGY INNOVATION, THE WILSON CENTER

    Mr. Dueweke. Thank you.
    Esteemed members of the House Financial Services Committee, 
Chairman Himes, Ranking Member Barr, Chairwoman Waters, and 
Ranking Member McHenry, I would like to thank the committee for 
inviting me to testify on this often-ignored area of the modern 
financial world.
    I would like to briefly describe the outlines of the risks 
presented by the use of virtual currencies to the United States 
and its allies in the Western world.
    Please also refer to my written testimony for greater 
detail regarding my thoughts on the great advantages of many, 
but not all, of these systems to the billions of unbanked and 
underbanked people around the world. It is not all bad.
    The scope of virtual currencies extends far beyond Bitcoin 
and other cryptocurrencies and includes many alternative 
payment systems you are familiar with, such as PayPal or 
Western Union, but also included are hundreds more that you 
might not be familiar with. Some of these, such as Russia's, 
``dark PayPals,'' as I call them, including WebMoney and 
Perfect Money, have often been used by criminals, especially 
Russian criminals.
    QIWI, as I previously testified before the Senate Judiciary 
Committee, was used to purchase Facebook ads attempting to 
influence the 2016 U.S. Presidential election. The nexus 
between adversarial, illiberal regimes and cybercrime cartels 
acting as their proxies using these systems is clear.
    These alternative payment systems are not small, with 
China's centralized virtual currencies, WeChat Pay and Alipay 
processing 294.6 trillion yuan, or about $45.6 trillion, in 
2020. This dwarfs the $15.8 trillion in all crypto-related 
transactions that Mastercard's CipherTrace estimated occurred 
in 2021.
    While public blockchain intelligence systems, like 
Chainalysis, TRM, and CipherTrace, are beginning to do peel-
chain analysis, where cryptocurrencies are exchanged for others 
to obfuscate their origins or usage, they do poorly when 
assessing where the money goes after conversion into a privacy 
coin, a centralized virtual currency like Alipay, or other 
alternative payment systems.
    Traditional, follow-the-money approaches often miss the 
role played by the alternative payments ecosystem--I will call 
it the, ``APE,'' for short--especially when executed without a 
generalized understanding of the varied and constantly-morphing 
set of companies and services that are part of it.
    Focusing only on cryptocurrency risks misunderstanding this 
global thriving ecosystem. Combined, these virtual currencies, 
mobile payment systems, remittent systems, and stored-value-
card systems fuel the shadow economy, as well as enabling very 
positive changes for the world's unbanked and underbanked. I 
define this as an ecosystem because they are all connected 
through hundreds of virtual currency exchanges, converting one 
alternative payment system for another and another or to and 
from fiat.
    Anonymity or misattribution lives there, where Know Your 
Customer (KYC) practices are being poorly applied or ignored 
entirely, especially outside of the West. Financial Open-Source 
Intelligence (FOSINT), should be developed as a discipline, as 
well as building tools to understand and monitor this ecosystem 
as a whole.
    The very stability of the global financial ecosystem, at 
least as we are familiar with it today, is being threatened as 
this APE has exploded in popularity and viability, becoming 
woven into the global social fabric. It provides a growing and 
capable set of interconnected, non-bank financial channels that 
may or may not ever touch the traditional financial system.
    The internet has connected them, just as SWIFT and 
automated clearing house (ACH) messaging networks provided the 
original connectivity for banks and other financial 
institutions to build our current payment system. These 
traditional bank-centric financial systems are under siege as 
the ground beneath them shifts amid the awakening of the 
unbanked and underbanked as well as the burgeoning global 
middle class.
    Frequent use of financial sanctions has contributed to this 
shift, as Chinese and Russian new payment systems bypass SWIFT 
and other Western-dominated financial backbones. No longer the 
domain of fintech startups, nor just limited to 
cryptocurrencies, nation-states are playing, ``the Great 
Game,'' on this new terrain.
    Increasingly, the high ground of that terrain will be 
central bank digital currencies. Nine countries have launched 
central bank digital currencies (CBDCs). Another 15 are in 
pilot and 16 are in development. The United States is not one 
of them, although President Biden's recent Executive Order on 
digital assets is a positive statement of intention to enter 
that arena.
    Currently, the United States is able to monitor and 
regulate most global payment flows of dollars, but CBDCs and 
other new payment systems are already limiting our ability to 
track cross-border money flows. In the long term, the absence 
of U.S. leadership in standard-setting will have geopolitical 
consequences, especially if China maintains its first-mover 
advantage in the development of CBDCs.
    If China, alone or with other BRIC countries, is able to 
combine their non-crypto virtual currencies with a viable CBDC, 
then soon there will be a real financial and national security 
problem beyond your ability to regulate. If that day comes--and 
it could be sooner than most think--the West's ability to 
dominate the world's financial sphere of soft power will 
lesson. Without action, our ability to lives in a rules-based 
financial system will fade with it.
    Thank you.
    [The prepared statement of Mr. Dueweke can be found on page 
32 of the appendix.]
    Chairman Himes. Thank you, Mr. Dueweke.
    Dr. Norrlof, you are now recognized for 5 minutes.

STATEMENT OF CARLA NORRLOF, NONRESIDENT SENIOR FELLOW, ECONOMIC 
  STATECRAFT INITIATIVE, GEOECONOMICS CENTER, ATLANTIC COUNCIL

    Ms. Norrlof. Thank you, Chairwoman Waters and Ranking 
Member McHenry, and also Subcommittee Chairman Himes and 
Ranking Member Barr, for inviting me to testify on this 
important topic. I am deeply honored.
    My testimony is based on an upcoming report written for the 
Frankfurt Forum, organized by the Atlantic Council's 
GeoEconomics Center and Atlantik-Brucke.
    Alternative payment systems pose national security risks 
because they could undercut the dominant role of the dollar in 
the international currency system. The dollar is by far the 
most frequently and widely used currency by both governments 
and private actors. It is used across all currency functions, 
and it is the only currency that is truly global.
    There is no immediate- or even medium-term threat to the 
dollar's dominance. Even over the long term, it is likely to 
stay dominant in absolute terms. Other payment systems could, 
however, threaten the dollar's relative dominance. And we are 
already seeing a relative decline in the dollar's status.
    For at least 2 decades, the international currency system 
has been strictly unipolar, but after 2017, the system became 
less unipolar, and in some years, came very close to becoming a 
bipolar or multipolar system. Even if relative decline towards 
other currency majors persists, an end to the dollar's absolute 
dominance is nowhere in sight. But relative decline could 
become an issue.
    Sanctions are likely motivating some countries to diversify 
away from the dollar and to devise alternative payment systems 
to avoid use of the dollar and storing assets in countries 
where they can be seized.
    As a countervailing tendency, however, countries joining 
U.S. sanctions efforts, as well as countries supporting 
sanction objectives short of imposing sanctions themselves, 
continue to have geopolitical incentives to diversify into the 
currencies by the sanctioning coalition, including dollars. 
Preliminary analysis of diversification out of Western 
currencies following the sanctions on Russia in February 2022 
suggest very modest diversification out of dollars, some 
diversification out of pound and yen as well, and 
diversification into Chinese RMB, other currencies, and euros.
    If alternative payment systems expand to involve many 
countries and private users and cover a wide array of 
commercial and financial transactions, the dollar will 
inevitably play a less prominent role than it has in the past. 
And this is a scenario worth considering.
    With the decline in the dollar's importance in the 
international economy, the economic and geopolitical benefits 
the United States enjoys as a result of issuing the dominant 
currency will also decline. An acute weakening of the dollar's 
global role will jeopardize the United States' ability to 
influence, stabilize, and enforce international order. The 
national security ramifications could be quite significant.
    Whenever possible, the United States should, therefore, 
work with allies to gain support for major sanction 
initiatives, as in the case of the recent sanctions against 
Russia. To mitigate the growth in alternative payments, the 
United States should avoid sanctions considered to be unfair or 
overly harsh. The United States should exhaust softer 
diplomatic influence attempts before reaching for sanctions, 
even when maximum campaigns, such as blocking a central bank's 
reserves, are not being considered.
    By signaling a commitment to dialogue and cooperative 
solutions in the overall use of sanctions, undecided nations 
are more likely to remain within the familiar, liquid dollar 
system than to sign up to uncertain, less-liquid alternative 
payment systems.
    Lastly, the United States cannot afford to simultaneously 
adopt a hard line towards foes and allies. The sharpest decline 
in the polarity of the international currency system coincides 
with an uptick in sanctions at a time when President Trump 
adopted a tough stance against allies, making them insecure 
about U.S. security commitments.
    Thank you very much.
    [The prepared statement of Dr. Norrlof can be found on page 
67 of the appendix.]
    Chairman Himes. Thank you, Dr. Norrlof.
    Mr. Redbord, you are now recognized for 5 minutes.

STATEMENT OF ARI REDBORD, HEAD OF LEGAL AND GOVERNMENT AFFAIRS, 
                            TRM LABS

    Mr. Redbord. Thank you.
    Thank you, Chairwoman Waters, Ranking Member McHenry, 
Subcommittee Chairman Himes, Subcommittee Ranking Member Barr, 
and members of the committee for holding this hearing and 
inviting me to participate. I am humbled by the critical role 
this institution plays in protecting our democracy.
    My name is Ari Redbord. I am head of legal and government 
affairs at TRM Labs, the blockchain intelligence company.
    What is blockchain intelligence? At TRM, we analyze public 
data from 25 blockchains and from over a million different 
digital assets. We then combine that publicly-available data 
with advanced analytics and proprietary threat intelligence to 
provide unique insights on fraud, financial crime, and national 
security risks to cryptocurrency businesses, financial 
institutions, law enforcement, and regulatory agencies 
worldwide.
    I hope that through my written and oral testimony today, 
the subcommittee can benefit from some of those unique 
insights.
    I have spent my career working to protect the financial 
system from illicit actors, first for over a decade as a 
Federal prosecutor at the U.S. Attorney's Office for the 
District of Columbia, and then at the Treasury Department as a 
Senior Advisor to the Under Secretary for Terrorism and 
Financial Intelligence.
    During my time at Treasury, every morning I walked past the 
Secretary's office, where there was a painting of Alexander 
Hamilton. That painting reminded me of what we were there to 
protect: a complex financial system filled with both challenges 
and opportunities. Today, our financial system faces new and 
emerging challenges, but it is also filled with opportunity.
    Both adversaries and allies alike are exploring alternative 
payment systems that may circumvent the U.S. financial system, 
impacting the primacy of the U.S. dollar, the efficacy of U.S. 
sanctions, and the ability for the U.S. to monitor financial 
crime.
    However, as non-democratic regimes attempt to build 
alternative payment rails through centralized government brute 
force, there is an alternative: We can enable the free market 
to innovate faster on solutions that incorporate democratic 
principles.
    One place this is happening today is with blockchain 
technology. We are already seeing blockchain technology lead to 
more competitive markets, grow the economy, and advance 
national security. For instance, financial services such as 
stablecoins enable consumers to seamlessly send money between 
companies across the globe. This could spur financial 
inclusion, lead to more competitive markets, and give consumers 
lower prices and greater choice.
    And, according to TRM's analysis, 99 percent of fiat-backed 
stablecoin value is tied to the U.S. dollar. Supporting the 
growth of dollar-backed stablecoins operated by regulated U.S. 
entities by establishing rules that ensure stability, security, 
and interoperability can help protect dollar primacy, ensure 
the efficacy of sanctions, and spread democratic principles 
across the world.
    The native properties of public blockchains--data that is 
transparent, traceable, public, permanent, private, and 
programmable--can enable law enforcement and regulators to more 
readily identify risks and more effectively and efficiently 
detect and investigate financial crime.
    The nature of public blockchains even facilitates the 
implementation of effective sanctions. For example, after North 
Korea's March 2022 hack of the Ronin Bridge, where 
cybercriminals stole over $600 million in cryptocurrency, OFAC 
used blockchain intelligence to quickly trace the stolen funds.
    OFAC then sanctioned both the blockchain addresses to which 
the funds moved, and the mixing services that North Korean 
cybercriminals had utilized to launder over a billion dollars 
of cryptocurrency. These rapid sanctions designations were 
possible only because of the transparent nature of public 
blockchains.
    According to TRM analysis, total monthly deposits into one 
of those mixers, Tornado Cash, decreased by 68 percent in the 
month after it was sanctioned.
    The strength of U.S. sanctions comes not from the primacy 
of the U.S. dollar alone, but also from the fact that the U.S. 
is home to innovative companies and people who are transacting 
in a global economy. The key to effective U.S. sanctions is to 
ensure that businesses that are leading in the new digital 
economy remain in the U.S. and serve U.S. customers. Just as 
the most significant companies of the internet age were born in 
the United States, the U.S. can be home to leaders of this new 
economy.
    As the White House wrote in the framework for digital 
assets published last week, U.S. companies lead the world in 
innovation. Digital asset firms are no exception. This should 
be a clarion call to a race to create and serve businesses in 
this new economy.
    Every morning when I walked by that painting of Alexander 
Hamilton, I reflected on a quote from Lin-Manuel Miranda's 
musical, ``What is a legacy? It is planting seeds in a garden 
you never get to see.'' This is our legacy, our opportunity to 
plant the seeds to ensure that democratic principles thrive in 
a growing financial system.
    Thank you, and I look forward to answering your questions 
today.
    [The prepared statement of Mr. Redbord can be found on page 
88 of the appendix.]
    Chairman Himes. Thank you, Mr. Redbord.
    Mr. Levin, you are now recognized for 5 minutes.

  STATEMENT OF JONATHAN LEVIN, CO-FOUNDER AND CHIEF STRATEGY 
                   OFFICER, CHAINALYSIS INC.

    Mr. Levin. Thank you.
    Chairwoman Waters, Ranking Member McHenry, Chairman Himes, 
Ranking Member Barr, and distinguished members of the 
committee, thank you for inviting me here today to testify in 
front of you.
    My name is Jonathan Levin, and I am one of the co-founders 
of Chainalysis. Chainalysis is the world leader in 
cryptocurrency investigative and compliance solutions.
    Before Chainalysis, 15 years ago, I spent a summer in 
Shanghai, and at that time the Chinese financial payment system 
was broken. I couldn't withdraw cash at the same bank when I 
went on a trip to Beijing. In the past 15 years, however, China 
has made enormous progress when it comes to financial 
innovation and mobile payments.
    They are now looking to export their domestic systems 
internationally through their domestic companies and through 
their foreign investments in other financial technology firms, 
and further innovation with a CBDC, as previously mentioned in 
this witness testimony.
    We must have a response.
    I have spent the last decade building Chainalysis and 
sitting on many task forces to actually improve our domestic 
payment system. All of this has been targeted at our domestic 
payment system and not at international competition.
    Cryptocurrencies actually mark the first innovation that is 
consistent with U.S. values and poses a real competitive threat 
to China's financial innovation strategy and their bid to own 
the financial rails for the 21st Century.
    China cannot have a financial payment system that 
prioritizes strong guarantees over property rights and 
financial privacy. We must therefore mitigate the national 
security risks that arise from cryptocurrencies to unlock their 
strategic potential.
    Chainalysis' tools are used by government agencies around 
the world to investigate the illicit use of cryptocurrencies.
    And I want to highlight that the transparency of 
cryptocurrencies enhances the government's ability to detect, 
attribute, and ultimately disrupt the illicit use of 
cryptocurrencies. In many instances, it is actually, in fact, 
easier to investigate cases involving the illicit use of 
cryptocurrencies than other traditional means of payment or 
some of the alternative payment systems that we are talking 
about.
    Furthermore, the percentage of illicit activity in 
cryptocurrencies is well below the 3- to 5-percent estimates, 
globally, of money laundering in our financial system.
    That being said, because of the transparent nature of 
cryptocurrencies, there are many stories about illicit activity 
and funds being identified and actually being recovered.
    Recently, in the Ronin Bridge hack that Ari just mentioned, 
we were proud that our tools could assist the Department of 
Justice (DOJ) in actually recovering $30 million worth of 
cryptocurrency stolen by North Korean-linked hackers, which I 
know is something of great importance and meaning to this 
committee.
    There are many more success stories of how the government 
has been able to leverage this technology to disrupt illicit 
activity, starting back at cases that I testified about in 
front of this committee a few years ago, including the Mt. Gox 
hack.
    In my written testimony, I discuss global trends in 
cryptocurrency, and provide the background on Chainalysis and 
how blockchain analysis can be leveraged in investigations. We 
also delve into the national security threats that are key to 
this committee and understanding the risks posed by these 
systems, including its abuse by actors in Iran, North Korea, 
Russia, and China, and provide recommendations for improving 
our response to this threat.
    In the 20th Century, the United States built the most 
mature financial system in the world. The guard rails were 
established to foster innovation and capital formation where 
individuals and corporations have clear knowledge of property 
rights, counterparty risks, and the costs of transacting. The 
U.S. regulation around commerce on the internet gave rise to 
the largest corporations in the world.
    Cryptocurrencies and stablecoins are already providing 
these services to consumers and businesses. In fact, we 
released our global adoption index this week at Chainalysis, 
highlighting that Vietnam, the Philippines, and Ukraine are 
among the top adopting countries in the world.
    We can ensure that our payment rails are used around the 
world and that it is built by U.S. companies to serve U.S. 
principles.
    I look forward to answering your questions.
    [The prepared statement of Mr. Levin can be found on page 
50 of the appendix.
    Chairman Himes. Thank you, Mr. Levin.
    I now recognize myself for 5 minutes for questions. I will 
begin with one question that has a strategic philosophical part 
and then a request for, kind of, policy recommendations.
    My question is this. There is an understandable instinct 
here to really go hard after the Chinese for their behavior in 
Hong Kong and Taiwan and Xinjiang and their stealing of our 
intellectual property, all--the long bill of indictment. And it 
is an understandable instinct, but it concerns me, because, 
unlike the situation with Russia, where we do negligible trade 
and have negligible economic ties, the situation with China 
could not be more different. They hold $1 trillion of U.S. 
sovereign debt. They do $2.5 trillion of global trade annually, 
$600 billion or so of that with the United States.
    If we took the approach with China that we have taken with 
Russia, the devastation to our economy and the global economy 
would be remarkable. Therefore, I am concerned about proposals 
to isolate them, to shut them down from the capital markets--
some of the proposals around here.
    My philosophical question is, strategically, how should we 
think about countering China in a way that doesn't bring 
economic apocalypse to us and to the globe?
    And then my much more specific policy question is, whatever 
your answer might be, what specific thing should we be doing 
with respect to platforms like Alipay and CIPS? Shut them down? 
Demand accountability?
    Again, I will let whomever wants to take the jump-ball, but 
help me with both that strategic and those specific questions.
    Mr. Levin. I'm happy to take the jump-ball, although the 
analogy is a little bit lost on me, but I think I get it.
    I think it is a great question. Let me answer the first 
part first.
    I think that when it comes to global competition, there is 
a big difference between Russia and China. We need to think a 
lot about what I call asymmetric defense.
    The symmetric defense that we have against Russia is the 
exclusion of them from the financial system. When it comes to 
China, we have to play a more long-term game. And what I mean 
by that is that we have a technology race on things like chips, 
AI, et cetera, where we need to build things that are the most 
advanced in the world, but that can be easily co-opted and suit 
the regime in China.
    What I think is interesting when it comes to payments is 
that, actually, our values on financial systems are completely 
different to that which exists in China. And, therefore, if we 
can actually foster a place where there are strong property 
rights, where people's financial privacy is actually 
guaranteed, with regulation and oversight, we can actually have 
a financial system for the world that mirrors American values 
rather than the Chinese.
    I think that it is one of these domains where we can 
actually try and foster a world of financial innovation which 
actually is diametrically opposed to the values of the Chinese 
Communist Party.
    Chairman Himes. Mr. Levin, what I am getting from you is 
that the strategic answer is to build a better mousetrap. Don't 
worry quite so much about shutting down their product, just 
build a much better product.
    Mr. Dueweke, I saw you raising your hand.
    Mr. Dueweke. I totally agree with everything Mr. Levin just 
said.
    In addition, emphasizing that the technology, the 
capabilities to build out on especially blockchain-based 
solutions--the eCNY is a distributed ledger system. It is not 
truly the type of blockchain system that we think of, because 
the Chinese don't want the auditability, the transparency, the 
ability to provide things like property rights that are not 
challengeable. What the Chinese want is the ability to collect 
information on people and to consolidate that information for 
their own purposes.
    So, by basically unchaining the ability of our industry to 
go ahead and compete, along with much better cybersecurity so 
that we are not giving up these secrets that we are working on, 
that is very important.
    Second, from all of the other alternative payment systems, 
we just need to make sure that the Chinese aren't able to 
expand into areas where they can benefit from having 
geolocation baked into their systems for all of the users. 
Certainly, that is something they have tried to do in Europe. 
We have successfully kept them out of the United States.
    And where there are problems with money laundering, threat 
finance, et cetera, respond to them and to those systems 
specifically the way--
    Chairman Himes. Let me stop you, Mr. Dueweke.
    I have two witnesses now saying, really, the path here is 
to build out a system consistent with our values, that will be 
attractive. Is there a dissenting voice or anything added? I 
only have about 10 seconds, so--
    Mr. Redbord. This is certainly not a dissent, but I would 
say, look, there is important work to be done on the pressure 
side as well. The Permanent Subcommittee on Investigations has 
some great--particularly in the intellectual-property-theft 
space.
    That said, really, sort of, the key to winning here is 
certainly what we are hearing from Mr. Levin, and Mr. Dueweke, 
and that is building a better mousetrap.
    We are seeing this in the blockchain space today, where 
China has essentially built blockchain infrastructure that 
doesn't have the democratic values baked in, that is intended 
for surveillance and state espionage.
    Chairman Himes. Thank you. I'm sorry. We will hopefully 
have a chance to continue this conversation, but I need to be a 
little bit disciplined on time, so that is it for me.
    And I now recognize the ranking member for 5 minutes for 
questions.
    Mr. Barr. Mr. Chairman, thank you for convening such an 
important and interesting and timely hearing.
    Let me start with kind of a threshold question. There are 
two narratives about the advent of digital assets and 
cryptocurrencies in law enforcement and sanctions evasion.
    One is that the pseudonymity of digital assets and 
cryptocurrencies enable/facilitate criminal activity, enable 
money laundering, and help ransomware, and it assists sanctions 
evasion and cyber attacks and the like.
    There is another narrative, Mr. Redbord and Mr. Levin, 
which is that your firms are able to use blockchain technology 
to assist law enforcement to crack down on these types of 
illicit activities.
    Which narrative is right? Is it a little bit of a 
combination? Speak to that for us.
    Mr. Redbord. Thank you for the question.
    I think you nailed it. The same qualities that make 
blockchain such a force for good--permissionless, 
decentralized, cross-border value transfer at the speed of the 
internet--also make it attractive to illicit actors who want to 
move funds quickly cross-border.
    But the reality is, we have more visibility on financial 
flows than we have ever had before. When I was a prosecutor, I 
worked these cases. And now with TRM, we assist law enforcement 
in investigating fraud and financial crime. And they can trace 
the flow of funds in ways that you never could with bulk cash 
smuggling and networks of hawalas and shell companies. And I 
think the reality is, we are seeing that play out.
    For example, there was a recent arrest in a case involving 
a 2016 hack of the cryptocurrency exchange Bitfinex. But 
because of the nature of blockchains--this immutable, public 
ledger that is forever--law enforcement was able to go back and 
use tools to trace and track the flow of funds in ways you 
never would be able to in the traditional financial system.
    There are certainly ways to sort of move funds in crypto, 
but there is also more visibility on those financial flows than 
ever before.
    Mr. Barr. Mr. Levin?
    Mr. Levin. Yes. Thank you, sir, for the question.
    I think the one thing I would say is that, to make the 
second narrative work, we have to change our mindset. We have 
never had a financial system that is as open as 
cryptocurrencies and presents the types of opportunities to 
monitor for illicit activity. And it has to start with a change 
in mindset for our Executive Branch of how they can actually 
proactively go after the types of threats that exist.
    And what we have demonstrated over the last 8 years is that 
it is definitely possible, with this technology, to go after 
criminals and to find them and to take sanctions actions and 
seizures and really hold people to account.
    But actually, as this system proliferates, we need to get 
proactive with our type of monitoring of the types of threats 
that exist. And we need to charge our Executive Branch with, 
how do you do that proactively in an age where this information 
is out there online, and how do you take a technology-first 
approach to dealing with these problems in a way that 
modernizes the type of approach to financial intelligence that 
we have seen in the past?
    Mr. Barr. Let me shift gears to central bank digital 
currency for a minute. What is the better approach to 
preserving and protecting and maintaining the dollar's 
dominance? Is it a Fed-issued digital currency, a central bank 
digital currency in the United States to compete with the 
digital RMB? Or is it a regulatory framework for fiat-backed 
stablecoins to preserve the utilization of the dollar as the 
world's currency, harnessing private-sector innovation to 
advance a U.S.-centric version of frictionless, cross-border, 
secure use of digital currency backed by the dollar?
    Which is the better approach, and why?
    Mr. Redbord. I will take a quick crack at it.
    I think what is interesting about the question, and 
certainly, what we hear from the Executive Branch is that there 
is continued work in the CBDC space. Even as late as last week, 
we heard from the White House in a very detailed technological 
discussion that they are still working on a CBDC. And the jury 
is really still out on whether that will happen at all.
    But the reality is that stablecoins are proliferating today 
globally. And as I said in my statement, 99 percent of those 
that are backed by fiat currencies are backed by the U.S. 
dollar, which gives us an incredible opportunity to export our 
values and our principles abroad through private technology of 
that kind.
    And I think this is a really extraordinary moment, when we 
see that level of commerce happening in U.S. dollars in the 
digital space, that this is really a moment to really provide 
legislative legal clarity to that space today as we still work 
on figuring out whether or not a CBDC makes sense.
    Mr. Barr. My time has expired, but I think it speaks to 
competing with China, not by becoming more like China, but by 
doing this the American way.
    Mr. Redbord. Well said.
    Chairman Himes. The gentleman's time has expired.
    The Chair of the Full Committee, Chairwoman Waters, is now 
recognized for 5 minutes.
    Chairwoman Waters. Thank you so very much.
    I am so pleased with this hearing and the witnesses that 
are here testifying today, because we have gained substantial 
information already, and the questions that are being raised by 
our members here will help us in so many ways as we move 
forward.
    As you know, we are focused on stablecoins right now, and 
we are developing legislation because of the volatility, 
because of the fact that we discovered that the representation 
for assets that were being held by some of these companies was 
really not real. It was a lot less than what they said.
    And so I really want to know, for Mr. Redbord, with what 
Mr. Dueweke has described, can you please address the need for 
the U.S. to develop a legal and regulatory framework to deal 
with stablecoins, the market for which is already over $152 
billion?
    Can we afford to do nothing or delay further Federal 
action, especially on ensuring that anti-money laundering and 
sanctions protections are included in this alternative payment 
method's growth?
    Mr. Redbord. Chairwoman Waters, thank you for the question.
    On the one hand, it is critical to ensure that regulation 
in an emerging space like this is done right. You want to 
ensure the open process that you have been engaging in and the 
opportunities for stakeholders to engage.
    But, on the other hand, the time is now. In the wake of the 
collapse of Terra, an algorithmic stablecoin, we have seen 
policymakers and regulators globally move to provide frameworks 
for stablecoins. We have seen safety nets through regulation. 
And it is really a moment to assert U.S. leadership by 
establishing rules that ensure the stability, security, and 
interoperability of regulated stablecoins.
    In any discussion, it is critical to point out that Terra 
was very, very different from what we are talking about today, 
these U.S.-backed stablecoins that will allow us to transact 
globally in U.S. dollars or U.S.-backed stablecoins.
    But as we continue to study the CBDC, the time really is 
now to act to provide clear regulatory guidance or clear 
legislative guidance to stablecoin issuers, particularly in 
this U.S.-backed space, to really give us the opportunity to 
lead here. The time is really now in this space.
    Chairwoman Waters. Thank you very much.
    And since you talked about blockchain quite a bit in 
responding, I think, to one of our members, what significant 
role can blockchain play in the identification of alternative 
payment systems that may not be in the best interests of the 
U.S. or internationally?
    Mr. Redbord. Absolutely. I think, as we discussed a little 
bit earlier, blockchains allow for unprecedented visibility on 
financial flows. And it allows us to identify not just illicit 
finance and bad actors but also instances that affect market 
integrity.
    And what blockchains really allow, with that permanent, 
immutable, public ledger, is it allows us to track trends in 
ways we never could before. Even in preparing for this hearing, 
we have a blockchain intelligence team at TRM, and they 
continuously provided updates to me on key insights on data. 
And this would be impossible without the extraordinary power of 
open blockchains. We have more insights on financial flows, not 
just financial crime, than we ever had before.
    And we just need to ensure, as we are building blockchain 
frameworks, just like they are building blockchain frameworks 
in China, that we are baking U.S. principles and democratic 
principles into that process.
    Chairwoman Waters. I want to thank you all for your 
testimony today.
    This is so important. As I have described, our first major 
legislation is dealing with stablecoins. And we know a lot 
about what has happened with stablecoins up to this point. But 
we are moving, as you know, to consider where we are going to 
stand with a CBDC. And so, everything that we could understand 
and learn about how to deal with alternative payments, I think 
is going to be very important.
    And while I share our Subcommittee Chair's concerns about 
China, you must know that many of us are looking very closely 
at China for everything and trying to make sure that their 
cooperation with Russia or North Korea is not such that they 
are gaining ground on us in any aspect of our economy and our 
democracy.
    Thank you so very much for being here today.
    Chairman Himes. The gentlelady's time has expired.
    The gentleman from Texas, Mr. Sessions, is recognized for 5 
minutes.
    Mr. Sessions. Mr. Chairman, thank you very much. And my 
thanks to you and the Chair of the Full Committee, Chairwoman 
Waters, for providing an insightful and timely opportunity to 
hear from our witnesses.
    And let me congratulate each of you. I think you have given 
us not only good insight but fair warning of what lies ahead.
    I want to go back to--because I think my thinking is a lot 
like our ranking member, the gentleman from Kentucky, Mr. Barr. 
And I have changed four or five times in my thinking since then 
as each of you have spoken.
    I only have a few minutes, but let me say this. I have a 
question, and that question revolves around, if the United 
States, as we migrate to this stablecoin and we finish the 
legislation that the gentlewoman has and we move forward--two 
questions: Number one, can we see, other than knowing what 
China is after--that they are after more personal information 
on people, which, here in the United States, we don't want to 
do that, personal information and data that could be used to 
control anybody; and, second, about the excessive amount of 
money that was stolen by gangs as we provided our COVID relief 
and other things, that goes into the billions of dollars.
    How stable and secure are these processes? And do you have 
any feedback on that?
    I guess I would ask, Mr. Levin, if you have an idea, Mr. 
Redbord, or Mr. Dueweke, because, in particular, I think I 
focused on specific areas that you have addressed. So if you 
would take the remaining 3 minutes and 10 secs, perhaps a 
minute each--
    Mr. Dueweke. Certainly.
    Mr. Sessions. --and provide me some context.
    Mr. Dueweke. And it is a great question because it gets 
to--especially for the COVID relief, it gets to the very porous 
natures of a lot of these processes, where you don't have good 
control.
    And the underlying technology of cryptocurrency, including 
Bitcoin, is, of course, the blockchain. And people often 
conflate blockchain with strictly financial applications, but, 
in fact, I have done a lot of work with the healthcare 
industry, where the blockchain was being used, at least in 
pilot form, to share identity and to avoid the leaking of 
personally identifiable information.
    It certainly would lend itself well to a process where you 
are trying to get money out there but you need to understand 
who it is going to. Now, it is not something you are going to 
be able to set up immediately in a crisis, but if you have such 
a system prepared, certainly blockchain would help do that.
    Second, as far as stablecoins in general, I think what 
people are sometimes missing when they focus on it--I agree 
that it is a way to focus innovation, focus the American way, 
to building new systems like that. But don't forget that it is 
part of an ecosystem, and don't forget that it is fungible. And 
without having controls on that from stem to stern, you are 
going to lose control quite often.
    And even with the stablecoins that are out there today, you 
oftentimes will see it be converted out of that stablecoin and 
into something else that isn't trackable--it might be a privacy 
coin; it might be one of these centralized virtual currencies 
based in Russia--and then come back in, and you are not going 
to be able to track that.
    Better Know Your Customer (KYC) requirements, I think, are 
part of this too. We do this first layer of KYC pretty well for 
who is going to be your customer. Who they are dealing with 
does not go as well. And, in fact, there are person-to-person 
exchanges even in the United States where there are publicly-
posted requests to buy or sell cryptocurrency and they say that 
they don't need to have identity of that person.
    So, even meeting the requirements of the current 
regulations and laws as they exist, if they are still allowed 
to facilitate that type of kind of semi-anonymous transfers at 
a premium, it is kind of like having the 21-year-old kid next 
door stand outside of a Kwik-E-Mart and be able to buy legally, 
and then there will be a line of kids there getting it from 
him.
    It is just not making sense. We have to do better at KYC.
    Mr. Sessions. Thank you very much.
    Mr. Chairman, one last word. I would like to bring down my 
information to you and have you engage me. I know we have run 
out of time.
    Mr. Chairman, thank you very much. Most interesting, well 
worth my time.
    And the gentlewoman from California, thank you very much.
    I yield back.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Guam, Mr. San Nicolas, who is coming to 
us remotely, is recognized for 5 minutes.
    Mr. San Nicolas. Thank you so much, Mr. Chairman. And I 
would like to echo the sentiments of my bipartisan colleagues. 
I think this is the second subcommittee hearing we are having 
that I think has a lot of bipartisan interest.
    And Chairwoman Waters, thank you so much for your 
leadership in helping us to come together on very key issues 
that are affecting the globe.
    I wanted to first just make sure we have it clear on the 
record, if we can just get a quick, ``yes'' or ``no'' across-
the-board from the witnesses, but what I am hearing is that 
every single person on this panel agrees that the United States 
needs to, in some form or another, whether it is a CBDC or a 
stablecoin, we need some form of digital currency.
    Is that a, ``yes,'' across the panel?
    Chairman Himes. I think he is asking for a, ``yes'' or 
``no,'' from all of the witnesses, so we will start with Ms. 
Jin and just move to the right.
    Ms. Jin. Yes.
    Mr. Dueweke. Yes.
    Ms. Norrlof. Yes, for CBDC.
    Mr. Redbord. Yes.
    Mr. Levin. Yes.
    Mr. San Nicolas. Thank you.
    And, actually, Dr. Norrlof, I would like to direct my next 
question to you, because--and this is kind of tied into, I 
think, where Mr. Barr was going earlier, about the difference 
between CBDCs and stablecoins.
    We have the Federal Reserve, and they are responsible for 
monetary supply and a various host of other responsibilities in 
the financial system. We also have the U.S. Treasury, and one 
of their primary responsibilities is the production of coin and 
currency.
    As we navigate going forward what we see as a unanimous 
need for us to adopt some form of digital currency, where 
should the leadership really come from? Should the leadership 
come from the Federal Reserve, or should it come from U.S. 
Treasury that has a responsibility to produce coin and 
currency?
    Dr. Norrlof?
    Ms. Norrlof. I think that the leadership should come from 
the Federal Reserve.
    I also want to say that, for the CBDC, I think that 
progress in this area is especially important because that is 
really where China can make a difference to undercut the 
dominance of the dollar. If the Chinese CBDC goes forward, we 
will see a very strong push towards a convertible renminbi, 
which will put the Chinese currency--really make it much more 
attractive for international investors.
    I would also like to highlight that, for the CBDC, it is 
not just a China issue; it is a general issue. According to the 
Atlantic Council's research, there are about 104 countries that 
are currently exploring CBDCs. And I think that there are real 
opportunities for the Federal Reserve to assume leadership in 
this critical area.
    Mr. San Nicolas. Thank you.
    Mr. Chairman, I just wanted to, I guess, pose the question 
across-the-board, because I am still trying to come to grips 
with the idea that what has historically been a Treasury 
responsibility on the production of coin and currency will now 
potentially become also a Federal Reserve power, if they are 
authorized to do so on the digital currency sphere.
    And so, I would like to also pose it to the remaining 
panelists: Is there a consensus that there is a belief that the 
Federal Reserve should be the one taking the lead on the 
digitization of U.S. currency, or should it be the Treasury?
    I guess we can go from right to left.
    Chairman Himes. Mr. Levin, that would be you. I guess we 
are going the other way this time.
    Mr. Levin. Oh, okay. Thank you, sir.
    I think that the question of oversight here is primarily 
about technology.
    And I would say that one clarification that I would like to 
sort of put forward is that, actually, we already have a lot of 
digital dollars in existence. In fact, a lot of our payment 
system is digital. We are not, sort of, sitting here with 
dollar bills.
    The Federal Reserve is primarily responsible for the 
technology that supports how we clear and settle those dollars. 
And so, it does make sense that as a pure technology play, we 
think about what the future of that technology stack looks 
like, and that would come under the Federal Reserve.
    And there is some significant work in making sure that all 
of the institutions that are actually transacting in dollars 
and have access to that system, actually can have buy-in and 
weigh-in on the cybersecurity concerns and the AML concerns.
    Mr. Redbord. I agree with Mr. Levin in that it really 
depends on the technology itself.
    If we are talking purely about a CBDC, a central-bank-
issued digital dollar, then certainly, obviously, the Federal 
Reserve is--that is the function that the Federal Reserve has 
always taken when it comes to our currency.
    But when we are talking about U.S.-backed stablecoins 
globally for payments, that could very well be something that 
is regulated or the oversight comes from the Treasury 
Department, just like other sorts of technology, whether we are 
talking about securities or commodities, could be handled by 
other regulators.
    I think, today, it really depends on the technology.
    But, to the first question, the U.S. doubling down on the 
need for a digital asset that holds our values and exports 
those values, whether it is a stablecoin or a CBDC, I think is 
certainly important.
    Chairman Himes. The gentleman's time has expired.
    Mr. San Nicolas. Thank you.
    Chairman Himes. The gentleman from Texas, Mr. Williams, is 
now recognized for 5 minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman. And thank 
you for calling this hearing today.
    Being from Texas, when I hear about payment systems funding 
illegal activities, my mind--you know where it goes. It goes to 
the southern border. This year alone, we have seen the 
numbers--expecting to see over 2 million people illegally come 
into this country. It is pretty unbelievable. And this massive 
influx of people has created a booming industry for drug 
cartels and human-trafficking organizations.
    And it is amazing how much these criminal enterprises have 
grown over the last few years. Just in 2018, there was an 
estimated $500 million in illicit revenues along the border. 
This year, that number has grown to $13 billion.
    And I have been to the border. I have been going to the 
border for many, many years and have witnessed firsthand how 
chaotic the situation is for the brave men and women on the 
Border Patrol. We need to pray for them every single day.
    The Biden Administration needs to stop turning a blind eye 
to the disaster--President Biden and Vice President Harris have 
not even been down there--and get serious about ending this 
national problem that we have.
    When I talk with Border Patrol agents, they say 
traditionally cash is king for these criminal organizations. 
However, with the advent of cryptocurrencies, there is some 
concern that the ease of cross-border payments has helped fuel 
this rise in revenue.
    Mr. Levin, can you describe the scale that cash is used for 
illegal activities compared to cryptocurrencies? And, 
additionally, can you give us a recommendation on how we can 
better implement technology to track the illicit money flows?
    Mr. Levin. Thank you, sir, for the question. And it is a 
very important issue.
    The feature of cryptocurrencies is that it does work 
seamlessly across borders anywhere in the world 
instantaneously, the same way as the internet. And people think 
that represents real problems when it comes to the issues that 
you are talking about.
    However, I would say that, in networks, in my experience, 
where it comes down to drug trafficking, human trafficking, and 
criminal activity, there are very established means of moving 
money, and those networks tend to rely heavily on existing 
financial networks of money laundering, which are very cash-
dependent still today.
    When it comes to being able to track this more proactively, 
it is actually possible to look at the flow of funds that go 
between borders when it comes to cryptocurrencies.
    That is what Chainalysis does and it provides that type of 
intelligence to the agencies that are responsible for tracking 
down the illicit use of cryptocurrencies--drug trafficking and 
human trafficking--that can be tied back to specific instances.
    And, indeed, I have been sort of familiar with several 
investigations where cryptocurrencies have actually led to the 
discovery of these types of networks and the arrests of the 
people who are perpetrating these crimes.
    Mr. Williams of Texas. Thank you for that.
    We have seen a news report for several months that the 
Biden Administration is trying to revive some form of the Iran 
nuclear deal. And, unfortunately, the President has been 
keeping Congress in the dark about how these negotiations are 
progressing, which is extremely bothering to me and a lot of 
others, considering this country is still a state sponsor of 
terrorism.
    Just this week, the OFAC took actions against 10 Iranian 
individuals and multiple businesses for their role in various 
ransomware attacks.
    Again, Mr. Levin, can you describe the methods that Iran is 
using to commit these cybercrimes?
    Mr. Levin. Thank you, sir. And it is a very important and 
timely issue.
    According to OFAC, the Islamic Revolutionary Guard Corps 
(IRGC)-affiliated group is perpetrating cybercrime attacks 
using known vulnerabilities and gaining unauthorized computer 
access to devices to extort victims in order to unlock those 
computers.
    What is then possible, due to the transparent nature of 
cryptocurrency, is that OFAC can, with their partners in other 
law enforcement agencies, actually track and trace those funds 
and manage to actually list some of the addresses that were 
being used to extort their victims, which definitely puts a 
dent in the financial motivations, if there were some, to 
perpetrate those attacks.
    And what I have seen historically is that we are actually 
able to track down some of the networks that enable the 
ransomware and cybercrime actors within Iran that are causing a 
disruption to our healthcare system, our education system, and 
targeting U.S. businesses, and, with the right tools, those 
agencies can go after them and prevent from financially 
benefiting.
    Chairman Himes. The gentleman yields back.
    The gentleman from Massachusetts, Mr. Auchincloss, who is 
also the Vice Chair of the Full Committee, is recognized for 5 
minutes.
    Mr. Auchincloss. Thank you, Mr. Chairman.
    Ms. Jin, my question is for you, to begin with, on China's 
digital currency.
    In January, you published research entitled, ``China's 
Digital Currency: Adding Financial Data to Digital 
Authoritarianism.'' The article states that, ``The Chinese 
government hopes to leverage Digital Currency/Electronic 
Payment, or DCEP, for the Chinese Communist Party's (CCP's) 
domestic political agenda.'' This furthers the belief that the 
CCP's digital currency will have to be taken up at the expense 
of privacy and individual freedoms.
    I want to add my voice to what we have heard from the 
Republican side of the aisle, that, to contest China's uptake 
of a CBDC, we do not need to respond with our own CBDC but, 
rather, with a regulated, competitive marketplace of 
stablecoins and to let American entrepreneurialism and 
competition surface the best.
    I welcome your input on that, both how the United States 
might create that ecosystem and also how it might help us 
compete with the Chinese digital yuan.
    Ms. Jin. Thank you so much for your question. To answer it, 
I might offer a heuristic that I use when I think about the 
Chinese system and the American system, which is this concept 
of legibility.
    ``Legibility'' is kind of an old political science term 
that talks about using simplistic metrics to understand the 
populace or the citizenry that you are serving. So, it is 
coming from the perspective of a state.
    And we can clearly see in the way that China runs its eCNY 
or DCEP--it has many names--that the idea is to have an 
enhanced sense of state-run digital legibility. The idea is to 
collect as much data as it can on the citizenry. And the data 
might over time have predictive property as well, depending on 
the advanced nature of the PBOC's Big Data analytic skill set.
    But this has proven to be a very useful way for me, 
personally, to think about how the United States' and China's 
systems are different.
    On the other side of digital legibility is this respect for 
digital financial privacy, which is, I would say, the crux of 
how the U.S. innovation system works, how the U.S. financial 
technology innovation systems and economic actors work 
together.
    I personally envision, and just according to my research, 
that the United States' innovation system will be a lot more 
productive if the regulations, first of all, are clear, but, 
second, the government is not cracking down or limiting certain 
innovative actors in essentially doing their jobs or conducting 
their businesses.
    Mr. Auchincloss. To jump in there--
    Ms. Jin. Yes.
    Mr. Auchincloss. And we are making progress on bipartisan 
stablecoin legislation, which is encouraging.
    Do you think it is necessary, just to really burrow down 
into this point, for there to be a U.S. CBDC for us to 
outcompete what the Chinese Communist Party is trying to do by 
creating an alternative financial payment system and digital 
currency?
    Ms. Jin. I don't think it is a necessary condition. 
However, I do think there is a lot of effort inside the U.S. 
Government from many different branches considering the 
possibility for--
    Mr. Auchincloss. So R&D, fine, could help us set the table 
and enforce international norms, but not actually the 
production?
    Ms. Jin. Not actually the production. But one--
    Mr. Auchincloss. Does anybody on this panel want to 
disagree with that?
    Ms. Norrlof. I have a point to this.
    I think that a lot of the focus here is on digital 
currencies, and I think that it is important, but I also think 
that the United States today is not really competing with 
China. China is trying to catch up, and they are using various 
methods in order to catch up.
    So, the United States does not have to have a central bank 
digital currency at this point. It could become more 
interesting at some future point in time. For the Chinese, 
however, it is quite crucial to have a central bank digital 
currency in order to get anywhere close to where the United 
States is today.
    Mr. Auchincloss. Yes, because, Dr. Norrlof, you have 
written about this, I know, in The Washington Post, about 
dollar dominance and the Chinese trying to catch up. And you 
are saying now that we don't need a CBDC to persist dollar 
dominance?
    Ms. Norrlof. If we are looking at the role of the dollar in 
the international system, China is nowhere near the United 
States.
    Mr. Auchincloss. Yes.
    Ms. Norrlof. China is trying to find inroads and various 
avenues in order to compete with the United States, but it is 
coming from a very, very low floor.
    Mr. Auchincloss. And could a well-regulated stablecoin 
marketplace in the United States help us box the CCP out from 
trying to contest us?
    Ms. Norrlof. I am not sure that it is necessary. I think 
that it would be, actually, more productive to think about 
alternative payment systems more broadly. What are other 
countries doing in order to bypass the dollar? Are they trying 
to use other currencies, notably the Chinese currency but also, 
I don't know, like, the Indian rupee--
    Mr. Auchincloss. I need to unfortunately interject--
    Ms. Norrlof. Okay.
    Mr. Auchincloss. --because I am out of time.
    And I will yield back to the Chair.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Arkansas, Mr. Hill, is now recognized 
for 5 minutes.
    Mr. Hill. Thank you, Chairman Himes.
    Thank you to the panel for sharing your views with the 
committee today.
    And thank you, Chairwoman Waters, for convening this 
hearing.
    And let me say that, first, Chairman Himes and I have a 
bill, the 21st Century Dollar Act, which essentially asks the 
Treasury to do a study that outlines exactly this debate, which 
is: What are the conditions present that we have to do in this 
country to make sure the dollar remains the reserve currency of 
the world and is an effective medium of exchange across the 
world? And that is important, because right now it is a major 
advantage to have things denominated in dollars, and we want to 
maintain that. And part of that would be looking at what role 
tokenization of the dollar might play.
    But, Dr. Norrlof, is the Chinese RMB extremely 
exchangeable?
    Ms. Norrlof. No. It--
    Mr. Hill. No, I am not asking you--just, is it, yes--
    Ms. Norrlof. No.
    Mr. Hill. No.
    Do they have the rule of law in China, where you would want 
to be in a Chinese court adjudicating a claim? Would that be--
    Ms. Norrlof. No.
    Mr. Hill. --your perfect place?
    Ms. Norrlof. No.
    Mr. Hill. No.
    And so, no rule of law, no freely exchangeable. The Chinese 
RMB is not a competing currency, unless we make it one by 
increasing its basket in the SDR basket at the IMF or doing 
anything that diminishes the power of the United States to have 
that valuable dollar.
    And I would say that running huge budget deficits and 
racking up debt and spending money like drunken sailors puts 
the dollar far more at risk than this debate about digital 
currency.
    But I urge our bill to be marked up and passed into law so 
that we can have a definitive all-of-government review of how 
we maintain a 21st-Century, competitive U.S. dollar.
    Let me turn to the actual subject of the hearing, if I 
could, and talk about sanctions-related issues and alternative 
payment systems. And, again, let me commend the Majority for 
the hearing.
    Since 2014, Russia has attempted to diversify away from the 
dollar. We have seen that. They have bought the euro, they have 
bought the yen, they have bought the RMB in their central bank. 
They have fewer dollars.
    When we cut them off in 2014, they decided they would start 
their own domestic credit card company, be less dependent on 
Visa/Mastercard. How has Visa and Mastercard's suspension of 
services in Russia affected domestic issuance and acceptance of 
Mir cards?
    Who wants to answer that?
    Yes, sir?
    Mr. Dueweke. I don't have the exact numbers, but Mir is 
still a shadow of what Visa and Mastercard had in the country.
    And what is interesting, post-2014, post-Crimea, is the way 
they diversified. In fact, in 2014, I was at The Hague on 
behalf of the DEA, talking on this topic actually, and the FSB 
was there. They still had two parts: anti-child-sex-rings, et 
cetera--they were still working with us on that--and anti-drug. 
And they talked about how, at that time, the Russian WebMoney 
system, which is now in over 80 countries, was the, ``primary 
drug money movement mechanism globally for Russian organized 
crime.'' Within a year, it had become their PayPal.
    Mr. Hill. Yes.
    Mr. Dueweke. And now, we have Yandex Money and various 
others, like QIWI, that are found around the world. These 
alternative payment systems have also then become banks. There 
is QIWI Bank--
    Mr. Hill. Let we interrupt you there. Has China complied 
with the secondary sanctions, in your view, to prevent UnionPay 
from being a global interchange for those Mir cards, to replace 
the interchange that they were getting internationally from 
Visa, Mastercard, and American Express?
    Mr. Dueweke. Judging by the Russians who are going into 
Finland to use their UnionPay cards at ATMs, it doesn't 
necessarily appear so.
    Mr. Hill. So, that is an area that we should talk to 
Treasury about vis-a-vis secondary sanctions and from a 
compliance point of view?
    Mr. Dueweke. Correct.
    And I still think it speaks to what the last two speakers 
have described, which is that China, Russia, the BRIC 
countries, need that, one of them, to have a big system, much 
more than we need to have a CBDC. Right? They need a way to do 
trade amongst themselves.
    They have these messaging systems that they can use, the 
big alternative payment systems. My goodness, Alipay and WePay 
are just huge--much bigger than all of the crypto times four.
    Mr. Hill. Right.
    Mr. Dueweke. Right? Those systems exist in secure 
messaging. Using all of those, if you went then and converted 
it or combined a CBDC, the eCNY, with the mobile payment 
systems and all of the platforms on phones that people have, 
you would have a very robust system--
    Mr. Hill. Thank you.
    Mr. Dueweke. --pretty quickly.
    Mr. Hill. Thank you. I appreciate it. If you have more, 
please respond in writing.
    And I think this really speaks, Mr. Chairman, to why 
secondary sanctions and the use of FinCEN is important, because 
it links all of this together in enforcing our sanctions.
    I yield back.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Davidson, is recognized for 5 
minutes.
    Mr. Davidson. Thank you, Mr. Chairman.
    And I thank the witnesses for your work in this space.
    Chairwoman Waters, thank you for hosting this hearing and 
paying a lot of attention to this space. I think the future of 
money is perhaps the most important policy debate going on in 
Western civilization.
    Dr. Norrlof, as you highlight, there are over 100 countries 
around the world studying central bank digital currencies. My 
concern is that, of the countries studying it, I am not aware 
of a single country that is studying a true distributed ledger 
system that facilitates permissionless, peer-to-peer 
transactions.
    It seems like everyone is tripping over themselves to find 
a way to develop a tool that is the same creepy surveillance-
state system that China is developing, a centrally-managed, 
centrally-controlled, central bank digital currency that 
creates a monopoly on money, essentially to turn it into a tool 
for coercion and control more than what money is supposed to 
be, which is a store of value and an efficient means of 
exchange.
    This is a corruption of the whole concept of money. And 
that is why I think that the future of money is so important to 
Western civilization. If we see money turned into this, the 
principles and values that have built Western civilization are 
truly threatened. It might not be this government, but some 
government will eventually use that power the wrong way. And 
for people who doubt that, just imagine whomever your political 
rival is having control of the system of money.
    I have been a little concerned as I watch the debate as to 
the role for Treasury versus the Federal Reserve. It was a good 
question by Mr. San Nicolas. And I would just point out that, 
looking at our money, the Secretary of the Treasury's signature 
is on it, not the Chairman of the Federal Reserve. Looking at 
our money, it says, ``This note is legal tender for all debts, 
public and private.'' And cash is actually the only current, 
truly permissionless, peer-to-peer transaction system. There 
are a lot of digital systems that are working to rival that.
    And I would just ask quickly, so we can continue the 
conversation, maybe starting from right to left, Mr. Levin, do 
permissionless, peer-to-peer transactions pose a threat to the 
financial system?
    Mr. Levin. Thank you, sir, for the important question.
    I think that the permissionless, peer-to-peer transfer is 
part of the way that the economy works. And we have to find 
ways where our payment system actually reflects the type of 
innovation and industrial revolution that we have.
    Mr. Davidson. Yes. That is a recognition of fact. Does it 
pose a risk?
    Mr. Redbord?
    Mr. Redbord. I think that it is a major part of the 
financial system moving forward--permissionless blockchains, 
peer-to-peer transactions. And we can now enable that with 
technology.
    And I do think, at the end of the day, the choice of what 
the reserve currency is, is not going to be governments; it is 
going to be entrepreneurs and people who are transacting in 
that world. And they are always going to choose the freedom to 
transact without surveillance and potential state espionage. I 
believe that, ultimately, entrepreneurs will make the choice 
for a more permissionless system, and the technology will allow 
for that.
    Mr. Davidson. Yes. Thanks for recognizing that. I think it 
is an important observation.
    And I think governments are trying to cling to the power, 
fundamentally, which decreases trust. And I think Mr. Hill 
highlighted why no one is going to adopt--outside of China, 
people aren't going to rush to adopt a Chinese central--because 
it is the creepiest surveillance tool developed. They want to 
link it to a social credit system.
    And, frankly, there are Western governments that are 
tripping over themselves to find ways to do the same thing. I 
think people should be alarmed that the Bank for International 
Settlements, the central banker to the central banks, is trying 
to develop protocols that are this creepy surveillance-state 
version.
    What we should be studying--and we can't get the language 
adopted yet--would be--if we are going to study this with 
central banks, it would be, how do you do a true distributed-
ledger, permissionless, peer-to-peer system if you are going to 
digitize money for your own currency?
    Right now, the dollar is the dominant currency and likely 
will be for the foreseeable future. But the nature of that, how 
that is moved, people care about what does it translate to in 
dollars, even the most ubiquitous forms of central bank digital 
currency.
    And I would say just one last observation, Mr. Redbord, on 
your comments. One is, if you kill the use cases for 
permissionless, peer-to-peer transactions because of your 
desire to corrupt money and turn it into a tool for control, 
you kill the use cases for all kinds of things that aren't 
meant to be payment systems.
    So, I think it is an important thing that we protect that 
permissionless, peer-to-peer transaction system in all the ways 
that we talk about how to address our payment systems in the 
economy.
    I wish we had more time. Thanks for having the hearing.
    And thanks for your expertise. I would love to continue the 
dialogue with every one of you.
    And I yield back.
    Chairman Himes. The gentleman's time has expired.
    The gentleman from Ohio, Mr. Gonzalez, who is coming to us 
remotely, is now recognized for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Mr. Chairman. Thank you 
for holding this important hearing.
    And thank you to our witnesses for your insights.
    Mr. Redbord, I am going to start with you. There are some 
who believe that, absent a U.S. CBDC, we won't be able to 
implement sanctions or administer effective foreign policy. My 
contention is that private stablecoins, provided those coins 
are dollar-denominated and reserves are denominated in U.S. 
dollars, allow for sanctions to continue.
    Where do you land on this specific question around the 
ability to conduct sanctions and foreign policy in a world of 
dollar-backed stablecoins versus a CBDC?
    Mr. Redbord. Thank you so much for the question.
    I think there are two parts to this. I think, first, you 
have punitive sanctions measures. And we have seen those taken 
in the, sort of, private blockchain-based world. We have seen 
OFAC go after noncompliant exchanges, Russia-based, and 
essentially shut down their ability to move funds--ransomware 
payments, sanctions evasion. We have seen, as Mr. Levin and I 
both mentioned, them go after Lazarus Group, North Korea's 
cybercriminals, through the use of sanctions.
    So, I think we have seen effective sanctions taken by OFAC 
in the private blockchain space already.
    And then, I think the second piece of that is to really 
ensure that we are harnessing the power of, sort of the 
entrepreneurial spirit in the United States to build a better 
mousetrap. And that is really where the importance of this 
committee and this institution come in, to really ensure that 
we are fostering innovation, that we are encouraging people to 
build.
    And, as I mentioned in my opening statement, we are seeing 
today that 99 percent of stablecoins are--or stablecoins that 
are fiat-backed are tied to the U.S. dollar. And that means, 
already today, that we are ensuring that people who transact 
globally in this new digital system are transacting U.S. 
dollars, which really maintains the efficacy of U.S. sanctions, 
even in this new digital world where we keep hearing about the 
ability to move outside of the U.S. financial system.
    Mr. Gonzalez of Ohio. Thank you. I could not agree more 
with that sentiment.
    I want to shift now towards Tornado Cash, which, 
admittedly, I am still trying to wrap my head around fully. 
They were recently sanctioned by the Biden Administration on 
the logic that Tornado Cash is primarily a tool used by money 
launderers.
    And I think the implication is twofold: one, that the 
technology--if you believe the Administration--is inherently 
evil and used for evil purposes. That is, sort of, one 
contention. And the second is that, once funds enter Tornado 
Cash, law enforcement becomes impossible or highly unlikely.
    I want to take the second part first. Is it possible to 
still conduct law enforcement oversight and sanctions once 
funds enter a mixer like Tornado Cash?
    Mr. Levin. I can take this, Congressman.
    It is actually possible to follow funds through mixing 
services. And I know that sounds counterintuitive, but, in the 
case of the Ronin Bridge hack, we have just demonstrated that 
it is actually possible to seize funds on the other side of a 
mixing service.
    It is not always possible; it is not always impossible. But 
it is actually a technology that Chainalysis has developed in 
order to be able to help law enforcement actually conduct those 
investigations.
    Mr. Gonzalez of Ohio. Thank you.
    And then back on--
    Mr. Redbord. If I could--
    Mr. Gonzalez of Ohio. --the first point--quickly, on the 
first question, because I am running out of time, what 
legitimate uses might one have for using a mixing service? And 
I am thinking specifically about something like getting 
cryptocurrencies to Ukraine, but I don't want to preload that. 
But either of you can answer that.
    Mr. Redbord. Sure. That is a great example, Congressman.
    But, also, in a world in which transactions are happening 
more and more in open blockchains, people are going to want a 
level of privacy. We see that people's cryptocurrency addresses 
have been made public through social media and other places. 
They are going to want to be able to transact with some level 
of privacy in those transactions. We see employers who may 
start paying in cryptocurrency, who know the various wallets 
they are sending funds into. Those people will want some level 
of privacy. You may want privacy from potential state 
surveillance.
    But the reality is, I think the key to, sort of, the 
question around Tornado Cash is, as I thought Jonathan said 
very well, in terms of the new capabilities of tools like TRM 
and Chainalysis to trace through mixers. But, also, it is 
important to ensure that regular users are not affected by 
these sanctions.
    On the one hand, I think regulators are focused on going 
after illicit actors who are using these types of services, 
and, on the other hand, ensure that regular users are not being 
affected. And I think the key to that is having great data to 
really, really understand, sort of, what wallet addresses you 
are transacting with.
    Mr. Gonzalez of Ohio. Thank you.
    Privacy is a core American value. Let's not make it de 
facto illegal.
    And, with that, I yield back.
    Chairman Himes. The gentleman's time has expired.
    It would appear that we have no more Members with 
questions. Is that correct?
    Okay.
    I would like to thank our witnesses for their testimony 
today. This was a terrific conversation, as evidenced by the 
fact that every single member went over their time.
    I think there remains a great deal of interest in following 
up on a lot of this, and we will certainly do that, including 
on some topics that we--obviously, the chairwoman has released 
some draft stablecoin legislation which will be fodder for a 
lot of consideration and thought. And I think there was also a 
desire, as you sensed, to look deeper into what, if any, a CBDC 
would make sense and what is the path there, if there is one.
    So, again, I would like to thank all of our witnesses for 
their testimony.
    The Chair notes that some Members may have additional 
questions for these witnesses, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    With that, I thank our witnesses one more time, and this 
hearing is adjourned.
    [Whereupon, at 11:38 a.m., the hearing was adjourned.]

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