Brown: Stablecoins Endanger Americans’ Hard-Earned Money and Our Entire Economy

Sen. Brown’s remarks, as
prepared for delivery, follow:

Let me start by talking about
the Federal Reserve. 

This afternoon at 2:15 we will
be meeting in SVC-200 to markup five Federal Reserve nominees and one for the
FHFA.

We need a full Federal Reserve
Board of Governors to bring down prices and put workers first. 

Ranking Member Toomey and I
agreed on the dates for the hearing and markup over three weeks ago.

Americans are depending on us
to get them on the job as soon as possible.

If my colleagues are as
concerned about inflation as they claim to be, they will not slow down this
process, which will only hurt workers, their families, and our recovery.

If you watched the Super Bowl
on Sunday, you saw ad after ad for a product that most Americans have heard of,
but almost nobody knows what it is. Even many of the people who’ve bought it
often don’t really understand it. 

Big crypto companies are
looking to make big profits, and are desperate to reach as many Americans as
they can. They brought in celebrities and gimmicks to make crypto sound
exciting and daring and profitable.

But the ads left a few things
out.

They didn’t mention the fraud,
scams, and outright theft.

The ads didn’t point out that
you can lose big in crypto’s huge price swings. They didn’t tell you about the
high fees pocketed by the crypto companies. 

And they sure didn’t explain
that crypto markets lack basic investor protections and oversight.

Just a few weeks ago, hackers
stole more than $300 million of people’s investments from a crypto platform.

The fact that these companies
felt the need to advertise at all is a bit of a giveaway about one of their
major claims – if this were actually meant to be used as currency, why would
you need to buy ads? I’ve never seen the Federal Reserve buy a multimillion
dollar commercial for “U.S. dollars.”

That’s because crypto isn’t
money. It’s designed for speculation. And watching all those ads reminded a lot
of us of some asset bubbles we’ve been before.

The 2000 Super Bowl featured
21 ads from 14 different dot com start-ups. The internet may have been the next
frontier, but those companies weren’t – many of them were defunct within a year
or two, and just four are still around today.

We’re here today because once
again, real people’s real money is at risk. We need to look
beyond the unproven promises, and protect Americans and our entire financial
system.

In a hearing last July, this
Committee examined the risks of cryptocurrencies to our economy. In December,
we looked closely at the mechanics behind stablecoins and stablecoin companies. 

Today, we’re joined by
Treasury Under Secretary Liang, to look at the risks stablecoins pose, and how
regulators and Congress can protect consumers.

Last fall, the Treasury
Department led a team of our financial regulators to conduct a report on
stablecoins. The report makes it clear that without regulation, stablecoins can
endanger our economy, our payments systems, our hard-earned money.

And while stablecoins suggest
they’re like money, good luck trying to use one at the store. Their main
purpose today is to make it easier to trade, speculate, and in some cases even
hide assets in crypto and digital markets. 

In just a few years,
stablecoins have mushroomed into a 175 billion dollar market. Now they’re
asking us to believe that what they’ve built is as good as real money, and that
it works the way these start-ups say it does. 

Americans – and this Committee
– should look carefully at those promises.

The companies claim that a
stablecoin is backed by real dollars, invested in a reserve account – that’s
what makes it “stable”. 

But our regulators tested that
claim by a giant stablecoin issuer. That issuer ended up paying nearly $60
million in fines because it lied about its reserves. It turns out that for over
two years, the stablecoin was only really “backed” 28 percent of the time.

Stablecoin companies say that
you can, quote, “redeem” a stablecoin whenever you want, exchanging it back
into dollars from the stablecoin’s reserve.

But the fine print in the
agreements of some of the biggest companies says that ordinary consumers can’t
actually redeem their stablecoins for dollars from the company that issues
them. Only institutions like hedge funds can. And even then, many stablecoin
issuers can delay redemptions, or refuse them entirely. 

So if you saw a Super Bowl ad
and figured you’d give this a try, and you change your mind and want to
exchange your stablecoin for dollars, you might be out of luck. The website
could be down. Your money could be trapped.

Stablecoin issuers also
promise that their product will serve people who have been left behind in the
financial system.

But as we’ve established,
crypto doesn’t actually function as real currency in any traditional sense.
Allowing more people to trap their money in risky, speculative investments
isn’t the kind of financial inclusion we need. It’s not going to do anything to
help Americans working hourly jobs who don’t put their paychecks in the bank
because of abusive fees.

Finally, stablecoin companies
say that if you hand them your money, your money will be safe. They tell us
that they structure their reserves so that people’s money is protected, and
that their business will weather any kind of crisis.

Now, maybe the stablecoin
companies are right. Maybe we should just close our eyes and trust that a
product called “Magic Internet Money” – run by an outfit called “Abracadabra” –
is a safe place for your money. 

But I don’t think working
Americans can take that risk.

Remember in 2007 and 2008,
when the banks said homes prices would only go up and mortgages would never be
underwater?

And then, as now, it’s workers
and their families whose homes and hard-earned savings are being used as
gambling chips. They’re the ones who will pay the price.

I understand the appeal of
crypto. Americans have burned over and over again by Wall Street. The 2008
crisis, abusive fees, a stock market that seems detached from reality – of
course people don’t trust the big banks. And they figure, how could putting my
money in one of these new products be any worse? Maybe I’ll finally get in on
the kinds of deals that have been making investment bankers wealthy for years.

And some of those Super Bowl
ads were pretty compelling television. They make vague allusions to innovation
and the future – and who could be against innovation?

But we have ignored warnings
like the report we’re talking about today too many times before.

Before the financial crisis,
Congress and regulators ignored warnings about the risky bets, increasing
leverage, and over-the-counter derivatives on Wall Street. Then the banks got a
bailout, and working people paid the price. 

That’s why I want Congress and
regulators to work together to tackle these risks now, before it’s too late.

I urge my colleagues to listen
carefully to Under Secretary Liang’s testimony today, and to the warnings in
the PWG report.

We need a strong, proactive
approach from regulators and Congress to limit stablecoins’ risks for working
Americans.

As our economy continues to
recover from COVID-19 – as workers are finally starting to see higher wages and
more bargaining power in the workplace—the last thing we need is for a risky
new financial product to cause disaster.

This isn’t the first hearing
this Committee has had on stablecoins, and it won’t be the last.

Ranking Member Toomey.

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