Dear Chair McHenry, Ranking Member Waters, and Members of the Committee,

My name is Nicholas Anthony. I am a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives. I appreciate the opportunity to provide input to assist the committee with its hearing titled, “Innovation Revolution: How Technology is Shaping the Future of Finance.”1 The Cato Institute is a public policy research organization dedicated to the principles of individual liberty, limited government, free markets, and peace. The Center for Monetary and Financial Alternatives focuses on identifying, studying, and promoting alternatives to centralized, bureaucratic, and discretionary monetary and financial regulatory systems. The opinions I express here are my own.

In this statement for the record, I’d like to offer three priorities for the beginning of the next Congress that build upon the foundation laid by the House Financial Services Committee (and its subcommittees) under the leadership of Chair McHenry.2 Namely, Congress should:

  1. Eliminate the financial surveillance conducted through 26 U.S.C. Section 6050I(d) and its companion laws.
  2. Establish that Congress, and Congress alone, has the authority to decide whether the United States would have a central bank digital currency, or CBDC.
  3. Establish protections for self-custody as a foundational component of cryptocurrency policy.

Financial Surveillance Should Be Reined in

The Bank Secrecy Act regime is long overdue for sweeping reforms.3 Yet, a relatively obscure portion of financial surveillance policy was brought to the forefront in 2021 with the enactment of the Infrastructure Investment and Jobs Act.4 As this Committee knows, new cryptocurrency reporting requirements were introduced in an attempt to offset spending. Part of that meant redefining the term “broker” in 26 U.S.C. Section 6045 and part of that meant expanding financial surveillance in 26 U.S.C. Section 6050I(d).

While both changes should be repealed,5 I’d like to focus your attention on 26 U.S.C. Section 6050I(d).6 The law now requires anyone engaged in a business transaction of $10,000 or more in cash or cryptocurrency to report the transaction to the Internal Revenue Service (IRS). The report must include the buyer’s name, address, and taxpayer identification number as well as the amount paid, the date, and the nature of the transaction. Failure to file within 15 days, incorrect information, or missing information may result in a $25,000 fine or five years in prison.7

The idea that individual citizens engaged in a peer-to-peer transaction must report one another to the government goes far beyond the already controversial nature of the third-party doctrine. The good news is that members of Congress have recognized this problem and introduced legislation to solve it.8 In fact, Chair McHenry was one of the first members to lead a bipartisan effort to undo the damage of the Infrastructure Investment and Jobs Act.9 As Congress eyes 2025, repealing the amendments from the Infrastructure Investment and Jobs Act and repealing 26 U.S.C. Section 6050I(d) in its entirety should be a priority to hit the ground running.

Congress Should Hold the Key to the Decision on CBDC

The House Financial Services Committee has also paid close attention to the rise of CBDCs.10 According to the Human Rights Foundation’s CBDC Tracker, 11 countries and the 8 islands that compose the Eastern Caribbean Currency Union have launched CBDCs; 39 countries, the Eurozone, and Hong Kong have CBDC pilot programs; and 72 countries, the Economic and Monetary Community of Central Africa, and Macao are researching CBDCs.11 In short, nearly 3 billion people live in countries that have launched CBDCs. However, the United States should not follow this path.

The global experience has been nothing short of a cautionary tale. Despite untold public funds being used to build CBDCs, policymakers have struggled to get citizens to actually use the CBDCs that have been launched.12 This experience can be seen in Jamaica, Nigeria, and China.13 Making matters worse, CBDC projects have been increasingly associated with public sector corruption. The central bank officials (including governors) leading CBDC projects in China, Lebanon, and Nigeria have all recently been ousted for corruption.14 And this is to say nothing of the risks CBDCs present to financial privacy, freedom, and markets.15

Congress should prohibit the Federal Reserve and the Treasury from launching a CBDC. Doing so establishes that Congress, and Congress alone, has the authority to decide the future—not unelected bureaucrats. As Chair McHenry stated on the House floor in support of Representative Tom Emmer’s (R‑MN) CBDC Anti-Surveillance State Act, “We’ve already seen examples of governments weaponizing their financial system against their own citizens.”16 A CBDC would only make those examples worse.

Direct Ownership Is a Foundational Piece of Cryptocurrency

Finally, there is the question of cryptocurrency policy. While there is much work to be done, I’d like to focus on the importance of self-hosted wallets. The introduction of bitcoin brought about a pivotal shift in the way people think of using money and financial services.17 The long-held assumption that the digital economy must rely on intermediaries was suddenly thrown into question. Like a wallet in your pocket or purse, a self-hosted wallet simply offers you the ability to have full control over what you own in the digital realm. People don’t have to worry about an exchange collapsing, a run on the bank, or any other risk created by relying on a third party.18

Yet, the freedom to use self-hosted wallets has been repeatedly thrown under fire. In late 2020, the Financial Crimes Enforcement Network (FinCEN) attempted to expand its authority to cover self-hosted wallets and restrict their use.19 In response, Representative Warren Davidson (R‑OH) introduced the Keep Your Coins Act to prevent this type of overreach.20 Yet, threats to self-hosted wallets have continued. In 2022, the Department of Justice (DOJ) took a jab at self-hosted wallets in a report explaining cryptocurrency to the Biden administration.21 And since then, members of Congress have called for self-hosted wallets to be regulated as money service businesses—a fundamental misunderstanding of the technology.22

Although these attempts to restrict the use of self-hosted wallets have been unsuccessful thus far, Congress should establish formal protections. Americans should not have to fear that their digital wallet is suddenly going to become illegal to own.

Conclusion

Over the last four years, Americans have witnessed the Biden administration, regulators, and members of Congress attempt to introduce greater financial controls, sweeping surveillance, and higher barriers to entry.23 The end of the Biden administration may be a relief for some, but it is not a time for pause. Now, stepping into the next Congress and the next administration, it is time to build on the foundation that has been laid.

My colleagues and I have appreciated the opportunity to testify on these issues before the House Financial Services Committee under Chair McHenry’s leadership,24 and we look forward to working with Congress more in 2025.