As Members of Congress’ interest in blockchain has grown in recent years, Rep. Jake Auchincloss (D), who represents the Fourth District of Massachusetts, has not *just* been along for the ride.
As a freshman Congressman in the 117th Congress, Rep. Auchincloss was a member of the House Financial Services (HFS) Committee and was exposed to, and engaged in, the intricacies of securities matters including the emerging digital assets industry.
In the 118th Congress, though no longer on HFS, his interest in technology and blockchain has been further piqued by service on the Transportation & Infrastructure Committee and the Select Committee on Strategic Competition Between the United States and China.
Today, he remains impactful on financial matters with his “Power of the Mint Act” [H.R.3402], which is co-sponsored by Rep. French Hill (R, AR), and seeks to assert Congressional power over any decision by the Federal Reserve to roll out a Central Bank Digital Currency (CBDC).
Rep. Auchincloss also recently voted in favor of the Financial Innovation and Technology Act for the 21st Century [H.R.4763] (FIT 21) and the House resolution to rescind the Securities and Exchange Commission’s (SEC) Staff Accounting Bulletin 121 (SAB 121) [H.J.R.109].
Yesterday, blockchain tipsheet spoke with Rep. Auchincloss about a range of digital asset issues including:
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- Support for FIT 21 and the SAB 121 resolution
- Blockchain use cases
- The Democratic caucus and digital assets
- Power of the Mint Act and CBDCs
- Wholesale versus retail CBDC
- Stablecoins and the US Dollar
- Congressional staff
- The next Congress…
(This transcript has been edited for clarity.)
blockchain tipsheet: You voted for the SAB 121 resolution as well as FIT 21. Why did you support each of these bills?
Rep. Jake Auchincloss: I voted for SAB 121 because the Government Accountability Office found – and this is a nonpartisan, independent body – that the SEC ran afoul of Administrative Law in issuing what really is a rule under the banner of guidance, and thereby circumventing rule-making.
It’s important that Congress uphold the rule of law and that we uphold Administrative Law process. To me, I am policy agnostic, but this was a process fidelity issue.
And, on FIT 21?
We need to regulate this industry. It’s here and the United States should create consumer protections, capital market integrity, and a regime in which the US dollar can be strengthened as the world’s reserve currency, and that requires Federal law.
I think this approach of regulation by enforcement is not sustainable and it’s not getting predictability. We have to do regulation by statute.
Back in November 2022, you were on stage at the Blockchain Association’s Policy Summit and expressed disappointment regarding the need for more use cases from the industry. How is the industry doing with use cases?
I don’t know that I would update my statements from two years ago. I think if you have to ask the question, then you don’t have a charismatic and compelling use case because charismatic and compelling use cases don’t need to be pitched, they are adopted as products.
There’s this old saying that “A robot is what you call something that doesn’t work yet.” When it works, it becomes a vacuum cleaner or a microwave -and then it’s just something that is an appliance in your everyday life and you can’t live without.
I think both crypto and AI are in this moment where they’re being described by their technology as opposed to their use case.
You know that you’ve made it, when you don’t say, “I’ll have AI do this.” You’ll say, “Let’s pull up Google Doc and let’s write this out together.” And it’s just using AI seamlessly – in the same way that, right now, Google Doc is using Python or SQL or whatever code they’re using to write that. So the same thing to me is true with the blockchain industry.
Blockchain should be abstracted away in the final use cases. You’re doing smart contracts, using settlements or it’s on the back end of big companies as a database. You’re not saying, “I’m using Blockchain.” You’re just saying this thing works and they’re using a whole tech stack -and one of them is blockchain.
It appears there is more support on the Democratic side for blockchain related legislation lately with the the SAB 121 resolution vote in Congress as well as FIT 21 in the House. What’s your view on the Democratic caucus as it relates to digital assets? Has the support always been there for regulation?
I’m not sure I could say anything more insightful than the vote tally that you saw: 71 Democrats voted for FIT 21 – that quantifies it.
You see where people are at in terms of regulation. I think there’s probably a lot more Democrats who would have come on board if it had been able to pass committee in a bipartisan way with the Ranking Member.
Really, this now rests with Senators Chuck Schumer (D, NY) and Debbie Stabenow (D, MI). If those two decide that a two-thirds vote in the House is sufficient to impel Senate legislation this term, then I think something interesting happens because you’ve got a conference. I’m pretty confident that the House leads for this bill would be happy to negotiate it.
I don’t think there’s any ideological commitment to the exact letter of this House bill. This was a good faith, bipartisan starting point for necessary, statute-driven regulation. The Senate should put forward their counterpoint, and then let’s work on it and conference the way legislation should be done. It’s really up to Senators Stabenow and Schumer at this point.
Moving to Central Bank Digital Currencies (CBDCs) you are responsible for the “Power of the Mint Act.” Why did you introduce the bill?
I’m deeply skeptical of CBDCs – especially skeptical of any Administrative action to issue a CBDC without Congressional approval.
So, I introduced a bipartisan bill that I believe would pass Congress. It simply states, you can’t you can’t issue a CBDC – and this is constitutionally clear – and that only Congress has the authority to do that. You have to get Congress’s approval. That’s the intent of this bill.
It was swallowed up by a partisan, haphazard piece of legislation put forward by the Republicans, and unfortunately, it’s not gonna get anywhere in the Senate.
The difference between mine and House Majority Whip Tom Emmer’s (R, MN) [CBDC Anti-Surveillance State Act [H.R.5403]] … mine can become law and his couldn’t.
As you look at Whip Emmer’s CBDC bill, what’s wrong with with it, specifically?
There are two challenges.
One is… Whip Emmer’s bill is much more hostile and muscular against preventing any form – or substance of – a CBDC, ever, in the future.
In a fast moving industry, I think the more appropriate thing to say is, clearly, there is Congressional prerogative over this CBDC question, which would prevent any short-term issuance of a CBDC. But, it does leave the door open for a decade from now – you know, things change… [For example…]
… if the Fed wants to come back with an extremely tailored, effective use case and can demonstrate why it expands the US Dollar as the world’s reserve currency.
… or why it’s necessary because other nations are issuing CBDCs and how we’re going to prevent bank runs, and how we’re going to not implode the banking system and how we’re not going to abuse the Fed discount window…
… it’s not gonna be programmable.
… we’re not going to politicize the currency.
If [CBDC proponents] can come back and have tight knit answers, and Congress writes it into a statute, we shouldn’t close the door on that in the future.
My bill was something that could pass and made clear that we weren’t going to do any knee-jerk issuance of a CBDC in the short run, which to me would be very poorly conceived.
Do you have an opinion on wholesale versus retail CBDCs?
At this point, I’m skeptical of both.
And, I don’t understand this cohort of individuals who are hostile to blockchain, who also want a CBDC. If you’re hostile to blockchain, why would you want the Fed to be issuing a CBDC? I’m agnostic to blockchain.
I’ve read Chris Dixon’s book that just came out and his delineation of its potential as a type of network that can combine the advantages of a protocol network and corporate network is compelling to me. So. I understand the theoretical use cases for it. As we discussed earlier, we haven’t really seen those kind of “slam dunk” use cases, yet.
But, I’m not ideologically hostile to it. We should encourage innovation, but, I am deeply skeptical of a CBDC. I don’t know that, at this point in this industry’s maturation, we should be adopting it at the Federal Reserve to issue currency that can be programmable and could lead to bank runs.
Looking specifically at the US Dollar as the world’s reserve currency – do you see that story within digital assets?
To be determined.
You’re right to be pointing to it as a potential application. To me, the most compelling use case for stablecoins would not be domestic, but international. People want to hold US Dollar assets in order to hedge against volatility in their own country – such as Circle’s USDC or the new Paxos USDL – they could offer ways to do that.
And to the extent that it extends the reach of the US Dollar as the world’s reserve currency by embedding it in a new type of currency system, I think that, generally, could be a good thing. It’s too early, though, to say that’s happening for real and bearing “fruit.”
Regulators have been a big part of the story with digital assets in during the 118th Congress. How have the CFTC and SEC been doing regarding digital assets?
I’ve had disagreements – as we’ve seen with the SAB 121 with the SEC – but in general, I think the onus is on Congress, not on them. What we’re seeing is… this is a complicated, new application, and clearly it’s in a legal gray area in a lot of its use cases. And, it’s incumbent on Congress to come up with new laws.
Regarding the “Clarity for Payment Stablecoins Act” [H.R.4766] from HFS Chair Patrick McHenry (R, NC) in House Financial Services. Would you support that bill?
I haven’t reviewed it thoroughly yet because I’m not on the Committee, but I have discussed it with him and others. I am broadly supportive of what it’s trying to do. Stablecoins can be a medium of exchange, but I’m concerned about the concept of them being yield bearing in a significant way. So, I think what his bill is pointing towards is treating it as currency and not treating it as yield bearing assets.
It hearkens back to the money market debates of the 1980s – it’s a similar concept. These were very liquid money markets where they felt almost like “money” for people, and yet they were yield bearing, too.
So, there was controversy from the banks and the regulators about “What are these money market accounts, really? Are these things that we should be treating more like banks, or we should be treating them more like 401 K’s?”
It’s a very thin line – right now- with stablecoins. What are these things, really? They can’t be both. If they’re both, you can get in trouble. You can’t have something that is meant to maintain stable value – and therefore you can use as currency to transact – and, at the same time, provide a yield, too.
How important are staff in the legislative process?
They are vital. It’s Committee staff, Member staff – they’re the sinews of the institution and the institutional memory, the relationships, the expertise. Drafting and, a lot of times, the negotiations, are what gets policy across the finish line.
Would “The Power of the Mint Act” come back in the 119th Congress, if Democrats controlled it?
I would certainly extend the offer to Rep. French Hill to reintroduce it with me. Yes.