Alternative payments’ threat to national security goes far beyond crypto

by · September 20, 2022

Non-crypto alternative payment systems pose a serious threat to US security, according to testimony presented at a hearing of the US House Financial Services Committee on National Security, International Development and Monetary Policy on Tuesday. The alternative payments ecosystem should be seen as a whole, and crypto can improve national security, speakers said.

Wilson Center fellow Scott Dueweke told the US House Financial Services subcommittee in written testimony: “By focusing only on cryptocurrencies, we risk missing the forest for the trees.”

Money services firms are strictly regulated in the United States, but those based outside the country may be unwilling to comply with US requirements, including Know Your Customer/Anti-Money Laundering, and may be outside the reporting requirements of the US and other Western countries, Dueweke said.

Dueweke recommended launching greater open-source financial intelligence efforts as a means of countering the threat posed by SWIFT network alternatives created by Russia and China and other threats. He said:

“The United States must follow our private sector’s global technology leadership by setting the standards for APE in the international arena. Whatever direction the U.S. government takes the digital dollar, […] it cannot wait to engage the world through international organizations.”

While political goals inspire such moves as the formation of such projects as Russia’s system for transferring financial messages, a SWIFT alternative, and the country’s MIR bank card system, Dueweke said poverty is a main driver in the expansion of the alternative payment ecosystem.

Dueweke said over 700 million people lack adequate banking services, and the situation is exacerbated by the practice of de-risking, where Western banks stop offering correspondent services to banks in poor regions. While safety is the state’s motivation for that practice, there is often a profit motive behind it, Dueweke said.

Related: Global Inflation Rises: How Stable Coins Help Protect Savings

TRM Labs head of legal and government affairs Ari Redbord told the hearing that US dollar-backed stablecoins could improve US national security. Because of the prestige and reliability of the American fiat currency, Redbord said,

“One can imagine a world where entrepreneurs create products for financial services using a US dollar-backed stablecoin even where those products otherwise have little to do with the US.”