US Rep. Norma Torres (D-CA) introduced the Senate Accountability for Cryptocurrency in El Salvador Act (ACES) Monday. Rep. Rick Crawford (R-AR) co-sponsored the bill.
Rep Torres averred:
“El Salvador’s adoption of Bitcoin is not a thoughtful embrace of innovation, but a careless gamble that is destabilizing the country.”
The bill instructs the State Department and heads of other US federal departments and agencies to study the adoption of bitcoin in the Pacific Central American nation and report to Congress within 60 days of passage.
Credible Concerns
ACES seeks recommendations for cyber and national security and to protect US interests abroad, including the US Dollar’s reserve currency status.
The bill made it to the US House just as Nayib Bukele took drastic measures in his war on crime after a spree of gruesome gangland murders claimed 70 lives and as the president readied to jet to Miami for the Bitcoin 2022 Conference.
ACES cleared a Senate Committee in Feb and could be brought to a full vote in the Senate. When the bill cleared that hurdle, El Salvadorian president Nayib Bukele, true to form, slammed the bill as US meddling in El Salvador. He said the US government is “afraid” of his country’s adoption of bitcoin as legal currency and warned the US to stay out of El Salvador.
But the concerns over Bukele’s initiative to adopt bitcoin are reasonable from the perspective of the US federal government.
In Feb, US Sen Jim Risch (R-ID) said:
“This new policy has the potential to weaken U.S. sanctions policy, empowering malign actors like China and organized criminal organizations. Our bipartisan legislation seeks greater clarity on El Salvador’s policy and requires the administration to mitigate potential risk to the U.S. financial system.”
Sen. Bill Cassidy (R-LA) added:
“El Salvador recognizing Bitcoin as official currency opens the door for money laundering cartels and undermines U.S. interests. If the United States wishes to combat money laundering and preserve the role of the dollar as a reserve currency of the world, we must tackle this issue head on.”
The State Dept report solicited by the bill— if it’s thorough— might include that Bitcoin, because of its transparency (all accounts and transactions on Bitcoin’s blockchain are publicly available), would likely make it easier for US national security and police agencies to monitor and counteract illicit activities.
Bitcoin vs. Traditional Banking
While Congress has credible concerns, most US legislators, unfortunately, seem far behind the curve in understanding Bitcoin and the cryptocurrency industry. For reference as a starting point, see Science.org’s 2016 article, “Why criminals can’t hide behind Bitcoin,” and Inc.’s 2018 article, “Startups Helping the FBI Catch Bitcoin Criminals.”
In fact, it’s Federal Reserve corporate banks that have the shoddy track record of allowing criminals and terrorists to launder money into their walled-off corporate vaults for USD.
The vulnerabilities of institutional finance are readily apparent from a number of publicized violations that only seem to result in fines, not technically effective policy reforms that close the gaps to terrorists and criminals.
In 2010, for example, Wells Fargo allowed the Mexican drug cartel to launder $378 billion through its bank. (The Guardian)
In 2012, the US fined HSBC $1.9 billion after learning that it had laundered hundreds of millions of dollars for terrorists, the drug cartel, and sanctioned governments. (New York Times)
In 2018, America’s leading institutional banking giant, JP Morgan, caught a $5.3 billion US Treasury fine for violating sanctions on Cuba and Iran 87 times. (Daily Sabah)
The US sanctions policy will undoubtedly be eroded if bitcoin and peer-to-peer finance continue to rise to prominence worldwide. But they have never been effective tools of foreign policy.
They seem more like effective electioneering tools that fail to accomplish foreign policy objectives while giving legislators the appearance to their home districts of doing something about overseas problems their voters learn about in news headlines.
“U.S. sanctions have also failed to bring about meaningful political change in countries such as China, Iran, North Korea, Russia, and Venezuela.” –Council on Foreign Relations
US State Dept and legislators will have to embrace a new paradigm of positive incentives to influence foreign powers (carrots over sticks). The US will still have the ability to attach conditions to government foreign aid and direct foreign investment from established US corporations whose capital is highly valued in the developing world.
If the Federal Reserve system can’t stop Bitcoin, the US should consider joining the hash power race to maintain its global monetary influence.
The government is understandably concerned about the decline of the USD as the world reserve currency. The dollar, however, will never be out of global sovereign demand for this purpose because of its stability, liquidity, and backing of the US government.
Meanwhile, the damage to US foreign monetary influence as crypto emerges can be mitigated by taking seriously the vital global financial importance of the hash power race on Bitcoin’s network— as a new critical arms race in the 21st century.
The more bitcoin the US government and Fed are willing to hold in reserve, and the more hash power they are willing to wield computers to deploy on the network, the more secure the US will be in the new global financial order where cryptocurrency will only continue to grow rapidly in importance.
As the globe rushes headlong into a new global financial order, the US government will have to adapt its monetary and foreign policy toolkit rather than trying to fight the inevitable. And time is running out.
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