Cryptocurrencies grabbed the world’s attention in 2021, but it seems that much of that attention is now focused on stablecoins alone. That much was evident during this week’s hearing with the House Committee on Financial Services––a hearing that was solely focused on stablecoins with just one witness from the U.S. Treasury, Nellie Liang.

Liang appeared before the committee to discuss the stablecoin report from the President’s Working Group on Financial Markets (PWG). Although Liang did offer helpful insights throughout the hearing, the most interesting side of the discussion might have been what the members of the committee were saying. Specifically, it was interesting to see how their concerns about market concentration and currency competition were taking shape.

Market Concentration

In her opening remarks and questions, Committee Chair Maxine Waters (D‑CA) expressed concern over the possibility of a “concentration of economic power” in the market for stablecoins. With this concern in mind, Chair Waters endorsed the PWG’s proposal to limit stablecoin issuance to insured depository institutions (e.g., banks and credit unions). In other words, she endorsed the idea of restricting the market to only the existing banks––players that have been largely absent from the development of stablecoins.

While some might agree with Chair Waters’ concern about concentrations of power, it’s unclear how using legislation to restrict the market to only the incumbent players is going to do anything but concentrate power.

In fact, Representative Gregory Meeks (D‑NY) pointed out that very issue when he said, “It occurs to me that limiting stablecoin issuance to insured depository institutions––which have a high barrier to entry––could limit competition.” Representative Meeks could not be more right here. As Nic Carter pointed out on Twitter: it’s been nearly a decade since the banking industry faced fresh competitors (see Figure 1). And cryptocurrencies offer an unprecedented opportunity to introduce a new wave of competition in the space.

If Congress at large is interested in preventing concentrations of power, the best way they can do that is to welcome competition. That means removing barriers to entry, not erecting them. Limiting stablecoin issuance to the traditional banking industry will only serve to further concentrate markets.

Currency Competition

However, there are some members that worry about what “unbridled” competition might yield. Over the past year, there has been a growing concern in Congress that cryptocurrencies might harm the dollar’s international status as the world’s reserve currency. For example, both at this hearing and the hearing last December, Representative Blaine Luetkemeyer (R‑MO) shared his concern that cryptocurrencies at large challenge the dollar and risk unseating its international status.

Although at this week’s hearing, what was most interesting was what the Representative said next. After noting his general concern, Representative Luetkemeyer clarified his position by noting that, “Stablecoins backed by the U.S. dollar present a unique opportunity to ensure the U.S. [dollar] remains the world reserve currency of the world.” Representatives Andy Barr (R‑KY), Ritchie Torres (D‑NY), and John Rose (R‑TN) all echoed that point later in the hearing as well.

The recognition of this fundamental fact––that USD-denominated stablecoins enhance the dollar’s status––is a great step forward for monetary and financial alternatives. The next step will be recognizing how competition from all cryptocurrencies can be beneficial––albeit, in different ways––for the United States. (For those that want to read more, I suggest reading the following pieces by myself, Norbert Michel, and Lawrence White.)

Looking Forward

Maybe it was just because it was near the end of what became a four-hour hearing, but even Liang ended up noting that, “Competition is the strongest force for improving the payments system over time and meeting the needs of all consumers.” Of all her responses, that might be the one that is most important for Congress to recognize. Whether it is with the banking industry or with money, Congress should welcome competition.