Rep. Tom Emmer Wants Stablecoins Over CBDCs – Interview

There’s nothing that screams techno-optimist about U.S. Rep. Tom Emmer, the four-term Republican member of Congress from Minnesota. The 60-year-old is a collector of toy trains and tractors. He first learned about cryptocurrency in a book. In a memorable scene from the coronavirus pandemic months, Emmer appeared upside-down on video during a congressional hearing.

But Emmer understands cryptocurrency better than most – especially among his peers in office – and has emerged as one of the industry’s fiercest political advocates. Decentralized technology is “inevitable,” he says, and elected and appointed officials can either support the growth of a homegrown U.S. crypto sector or see it advance elsewhere in the world.

This interview is part of a series called “Gensler for a Day,” where we ask industry leaders in a position to set or influence law about concrete policies they would implement. Check here for more “Policy Week” coverage.

“I’ll go down any rabbit hole when it comes to this because you’ve got to learn it, you’ve got to understand it,” Emmer said last week in a phone interview, reprinted below, on his legislative efforts in the House of Representative. “You do have to play with it a little bit. You got to touch it, you got to smell it, you got to manipulate it, see if you can throw it, catch it.”

Emmer is a powerful ally to have on Capitol Hill. In addition to co-chairing the Congressional Blockchain Caucus, which works to educate other legislators, he is chairman of the National Republican Congressional Committee (NRCC), which works to elect more Republicans to Congress, and is a ranking member of a powerful financial oversight subcommittee.

But his crypto-related work can be seen as an uphill battle. Emmer has spoken at length about how the digital asset industry is already “over-regulated.” Among policymakers, he’s also identified something of a bias against digital privacy and private monies. And now that Congress sees the $2 trillion (and counting) cryptocurrency industry as a potential tax revenue source and a driver behind a growing ransomware problem, there are risks of heightened oversight or misinformed policy being shoehorned into unrelated legislation.

Emmer recently put forward or co-signed a series of bills looking to clarify cryptocurrency regulation. His “Securities Clarity Act” would work with the “Digital Commodities Exchange Act” to answer once and for all when a cryptocurrency network or company should be overseen by federal securities regulators.

Crypto is one of the few areas that seems to transcend partisan, left versus right, politics. Many Democrats and Republicans see the technology as transformative, hold bitcoin and incorporate it into their brands (check out these campaign non-fungible tokens [NFT] – from blues and reds).

Emmer is a leading voice in this pro-tech camp, but like all decent politicians he knows this policy issue isn’t about him. Crypto, he says, is for the people.

In a recent interview on CoinDesk TV’s “First Mover” you suggested the government is looking at crypto as a potential revenue source. Are you opposed to the notion of taxing crypto in general and what would sensible policy look like here?

I’m absolutely opposed to the [Oregon Sen. Rob] Portman amendment in the [Biden administration’s] bipartisan infrastructure bill, because I think it was based on, I don’t want to say a false premise, but I just don’t think the $28 billion they expected to collect off of this tax [would be forthcoming].

First, let’s back up. Americans realize the value of crypto and blockchain innovation – and it’s those people who could be harmed by misguided legislation.

That debate over on the Senate side of the Capitol seems to have awakened some elected officials and their staff. When a Senate office receives 40,000 calls in one day, Daniel, like they did during the debates over the infrastructure bill, it really forces those elected representatives to care. It started with the idea of taxing the industry as a revenue source but it turned into a lot more. A lot of heads are popping up out of the sand saying, “What is this crypto thing?”

You know, I had no idea 55 million Americans are now involved in crypto. It’s got a market of more than $2 trillion. It’s one of the fastest-growing things that we’ve seen in decades. Because of all of that, the government is taking notice.

Along those lines, it looks like the “crypto provision” is going to be passed intact within the infrastructure bill. Do you think that matters?

We’ll have to see what happens with the bill. Depending on what room you’re in and with whom you’re talking, it’s either coming together slowly or it’s going farther apart. If we start with the hypothetical that the bill finds its way back to the floor and passes the House, gets signed by the president’s office and becomes law, that provision would be in there. But it’s not effective until 2023, so we will have time to change it. Is it the optimal situation, Daniel? No, I prefer that [language] never got there. But I’m confident that cooler heads will prevail – that amendments will be made – and we will be able to take action.

What does overregulation look like and how big of a risk is it?

Just take a look at our [U.S. Securities and Exchange Commission] Chair Gary Gensler if you want to know what overregulation is all about or why creating laws, if you will, through enforcement or regulatory enforcement is bad.

As I told him during a hearing [earlier in October], his conclusory public statements and threatened enforcement actions hurt everyday investors the most. Gensler actually believes that most tokens are securities – or at least he claimed to believe that most tokens are securities – because people buy them and expect to profit off of the work of developers and computer scientists. Since he thinks that most tokens are securities, he also believes that crypto exchanges that trade securities should be under SEC jurisdiction. These are his words.

I asked him specifically if someone who issued a token goes to register it with the SEC if they can trade on the New York Stock Exchange or Nasdaq. The answer right now is no. It couldn’t. I believe the most tokens are commodities or currencies once the project is decentralized.

We’ve got to remember this technology is decentralized after a project is fully developed, there’s no centralized group behind it, whose work investors would be profiting on. So at that point it should not be a security.

I’m going to suggest to you that Gary Gensler and other members of the [Biden] administration are ignorant as to how this area works, which is a big problem for the industry. I don’t believe that, though, I believe he’s very smart and he’s trying to expand his jurisdiction.

I’ll give you an example. He talks about “stable-value” coins. There is no such thing as a “stable-value” coins – they’re stablecoins. He used this term in his testimony before the Banking Committee in the Senate and in his testimony before the Financial Services Committee in the House. Why would he use that term? Did he just fumble with the words? No. Stable value funds are under the SEC’s jurisdiction, which might suggest “stable value” coins would be, too.

This throws the whole investment marketplace into a confused state. That is bad for individual investors and, frankly, I believe violates his mandate, which is to protect individual investors.

If you were in Gensler’s shoes, what would you do about stablecoin regulation?

I’ve got a bill out there right now called the Securities Clarity Act to try and deal with this problem of the overreaching regulator. A little clarity would go a long way towards solving this jurisdictional question between the SEC and its sister agencies. [Ed. note: Namely, the Commodity Futures Trading Commission.]

The bill would help token issuers easily determine when a token is actually part of a securities contract and when it’s not. You wouldn’t do this by amending the existing securities law, but in creating a new definition called an “investment contract asset.”

This particular bill would help the SEC understand what its jurisdiction is and encourage it to work with the industry to develop a bigger framework that we can all operate under. Then there is the sister bill carried by former Ag Chair [Kenneth Michael] Conaway (R-Texas). My office has been working with Republican ranking member “GT” Thompson (R- Pa.) of the [House Agriculture Committee] on this bill, which would give the CFTC the authority to regulate crypto spot markets, which are the crypto exchanges, obviously. This way, crypto exchanges can have one federal regulator rather than going through the burdensome process of getting 53 different licenses to operate across the United States.

The Securities Clarity Act in combination with the Digital Commodities Exchange Act, which is that other bill, will clear up jurisdictional boundaries and allow the marketplace to do what it does best: allow investors to do their homework, get involved in projects and grow new opportunities for themselves and others. That’s what makes this country great.

Shifting gears a little bit, do you think the United States needs a central bank digital currency (CBDC). And, if so, how can we guarantee strong privacy rights in digital public money?

By now people have to know that I am absolutely, adamantly opposed to the United States government or Federal Reserve, specifically, creating a central bank digital currency.

If it’s permissionless and maintains the privacy of cash, I suppose that’s workable. But until you can prove that would work, I adamantly oppose one. The Federal Reserve should never be competing with private business.

There are two main forms of a CBDC. One would impose central bank accounts, users would have bank accounts at the Fed. The Fed would collect KYC [know your customer] information on users and then be able to track their transactions. This is modeled, I would argue, after the Communist Party of China. This is the United States of America. Why would we ever want to emulate the Communist Party of China? I just disagree that we should never mobilize the Fed into retail banking.

The second way would have financial institutions like banks maintain all KYC information and serve as access points. [CBDC supporters will] probably try to argue this is better for financial institutions – but the Fed would still be able to track all transactions on the blockchain.

Bottom line is, CBDCs aren’t much different than swiping a credit card or a debit card, besides the fact that the central bank is involved and can oversee transactions. Neither one of these examples would maintain any element of privacy. [Meanwhile], stablecoins actually maintain certain elements of cash because they run on open, permissionless and private blockchains. That’s probably your best solution. The government should allow private citizens to develop this thing.

You said in an interview last spring that crypto is succeeding in part because people are losing faith in the system. Is there a way to square the support of crypto with the American Dream?

Crypto started, right, with Satoshi’s white paper released after the 2008 crash. I think this all comes out of the fact that the United States’s monetary policy, as well as the monetary policy around the globe, is suspect. When a government has a floating currency, when it can seemingly print as much cash as it wants, that’s good until it’s not.

We’re going to back this up. The people who started the crypto craze, way back when, they’re kind of like the financial preppers of our day. They were trying to anticipate a country where you couldn’t trust the currency. Bitcoin is a lot like gold. It holds its value.

I do think it’s compatible with the American Dream because Americans have always been pushing the frontier. Americans have always been free to innovate and this is what our government is going to have to understand: This is going to happen. It’s not a matter of if, it’s a matter of how far.

If our government wants to continue to put up roadblocks because of ignorance, because of fear, if you will, and the desire to control, [the crypto sector will] develop elsewhere. You’re going to have very intelligent, creative Americans and others that continue to develop new methods for transacting between individuals and or entities. Crypto is not going away. It’s just a matter of whether we will have a light touch regulatory framework that recognizes the potential crypto presents. This is an entirely new opportunity for different groups of people who may never have had access to the financial system.

That’s why I’ve been so outspoken, I want to see that happen right here in this country.

How far down the rabbit hole have you gone? Do you hold bitcoin, play around with decentralized finance?

Well, every time they open another door or trap door, if you will, I fall into it. Personally, I’m going to be careful, because I can tell you I know people very close to me that are actively involved in this marketplace. I will tell you, on an official level, more policymakers need to understand this industry.

A while back we started accepting cryptocurrency for campaign contributions. We did that in selfish self-interest. But if you think about it, we’re trying to appeal to my colleagues and their selfish self-interest, who might notice I started accepting cryptocurrency in my campaign and ask, “What is he getting that we’re not?”

I’ll go down any rabbit hole when it comes to this because you’ve got to learn it, you’ve got to understand it. You do have to play with it a little bit. You got to touch it, you got to smell it, you got to manipulate it, see if you can throw it, catch it. For some of us my age – we weren’t built the same way you were, Daniel, so it takes us a little bit longer – a virtual wallet is something that you really need to get used to.