[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] INCLUSIVE BANKING DURING A PANDEMIC: USING FEDACCOUNTS AND DIGITAL TOOLS TO IMPROVE DELIVERY OF STIMULUS PAYMENTS ======================================================================= HEARING BEFORE THE TASK FORCE ON FINANCIAL TECHNOLOGY OF THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS SECOND SESSION __________ JUNE 11, 2020 __________ Printed for the use of the Committee on Financial Services Serial No. 116-95 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] ______ U.S. GOVERNMENT PUBLISHING OFFICE 42-895 PDF WASHINGTON : 2021 HOUSE COMMITTEE ON FINANCIAL SERVICES MAXINE WATERS, California, Chairwoman CAROLYN B. MALONEY, New York PATRICK McHENRY, North Carolina, NYDIA M. VELAZQUEZ, New York Ranking Member BRAD SHERMAN, California ANN WAGNER, Missouri GREGORY W. MEEKS, New York FRANK D. LUCAS, Oklahoma WM. LACY CLAY, Missouri BILL POSEY, Florida DAVID SCOTT, Georgia BLAINE LUETKEMEYER, Missouri AL GREEN, Texas BILL HUIZENGA, Michigan EMANUEL CLEAVER, Missouri STEVE STIVERS, Ohio ED PERLMUTTER, Colorado ANDY BARR, Kentucky JIM A. HIMES, Connecticut SCOTT TIPTON, Colorado BILL FOSTER, Illinois ROGER WILLIAMS, Texas JOYCE BEATTY, Ohio FRENCH HILL, Arkansas DENNY HECK, Washington TOM EMMER, Minnesota JUAN VARGAS, California LEE M. ZELDIN, New York JOSH GOTTHEIMER, New Jersey BARRY LOUDERMILK, Georgia VICENTE GONZALEZ, Texas ALEXANDER X. MOONEY, West Virginia AL LAWSON, Florida WARREN DAVIDSON, Ohio MICHAEL SAN NICOLAS, Guam TED BUDD, North Carolina RASHIDA TLAIB, Michigan DAVID KUSTOFF, Tennessee KATIE PORTER, California TREY HOLLINGSWORTH, Indiana CINDY AXNE, Iowa ANTHONY GONZALEZ, Ohio SEAN CASTEN, Illinois JOHN ROSE, Tennessee AYANNA PRESSLEY, Massachusetts BRYAN STEIL, Wisconsin BEN McADAMS, Utah LANCE GOODEN, Texas ALEXANDRIA OCASIO-CORTEZ, New York DENVER RIGGLEMAN, Virginia JENNIFER WEXTON, Virginia WILLIAM TIMMONS, South Carolina STEPHEN F. LYNCH, Massachusetts VAN TAYLOR, Texas TULSI GABBARD, Hawaii ALMA ADAMS, North Carolina MADELEINE DEAN, Pennsylvania JESUS ``CHUY'' GARCIA, Illinois SYLVIA GARCIA, Texas DEAN PHILLIPS, Minnesota Charla Ouertatani, Staff Director TASK FORCE ON FINANCIAL TECHNOLOGY STEPHEN F. LYNCH, Massachusetts, Chairman DAVID SCOTT, Georgia TOM EMMER, Minnesota, Ranking JOSH GOTTHEIMER, New Jersey Member AL LAWSON, Florida BLAINE LUETKEMEYER, Missouri CINDY AXNE, Iowa FRENCH HILL, Arkansas BEN McADAMS, Utah WARREN DAVIDSON, Ohio JENNIFER WEXTON, Virginia BRYAN STEIL, Wisconsin RASHIDA TLAIB, Michigan C O N T E N T S ---------- Page Hearing held on: June 11, 2020................................................ 1 Appendix: June 11, 2020................................................ 29 WITNESSES Thursday, June 11, 2020 Baradaran, Mehrsa, Professor of Law, University of California Irvine School of Law........................................... 5 Giancarlo, Hon. J. Christopher, Senior Counsel, Willkie Farr & Gallagher, and former Chairman, U.S. Commodity Futures Trading Commission..................................................... 7 Kelley, Jodie, CEO, Electronic Transactions Association (ETA).... 9 Ricks, Morgan, Professor of Law, Vanderbilt University Law School 10 APPENDIX Prepared statements: Baradaran, Mehrsa............................................ 30 Giancarlo, Hon. J. Christopher............................... 39 Kelley, Jodie................................................ 99 Ricks, Morgan................................................ 114 Additional Material Submitted for the Record Lynch, Hon. Stephen F.: Written statement of the American Bankers Association........ 124 Written statement of Cornell University Law School........... 133 Written statement of the Credit Union National Association... 135 Written statement of eCurrency............................... 137 Written statement of the Innovative Payments Association..... 142 Written statement of Isaiah Jackson, author of ``Bitcoin and Black America''............................................ 161 Written statement of Mobility Capital Finance Inc............ 163 Emmer, Hon. Tom: Letter to Treasury Secretary Steven T. Mnuchin............... 168 Written statement of Cardtronics and Coinstar................ 170 Written statement of Tony Yezer.............................. 173 INCLUSIVE BANKING DURING A PANDEMIC: USING FEDACCOUNTS AND DIGITAL TOOLS TO IMPROVE DELIVERY OF STIMULUS PAYMENTS ---------- Thursday, June 11, 2020 U.S. House of Representatives, Task Force on Financial Technology, Committee on Financial Services, Washington, D.C. The task force met, pursuant to notice, at 12 p.m., via Webex, Hon. Stephen F. Lynch [chairman of the task force] presiding. Members present: Representatives Lynch, Scott, Lawson, Axne, McAdams, Wexton, Tlaib; Emmer, Hill, Davidson, and Steil. Ex officio present: Representatives Waters and McHenry. Chairman Lynch. The Task Force on Financial Technology will now come to order. Without objection, the Chair is authorized to declare a recess of the task force at any time. Also, without objection, members of the full Financial Services Committee who are not members of the task force are authorized to participate in today's hearing. Members are reminded to keep their video function on at all times, even when they are not being recognized by the Chair. Members are also reminded that they are responsible for muting and unmuting themselves, and to mute themselves after they are finished speaking. That would be helpful. Consistent with the regulations accompanying House Resolution 965, staff will only mute Members and witnesses as appropriate when not being recognized by the Chair, and for the purpose of preventing inadvertent background noise. Members are reminded that all House Rules relating to order and decorum apply to this remote hearing. Today's hearing is entitled, ``Inclusive Banking During a Pandemic: Using FedAccounts and Digital Tools to Improve Delivery of Stimulus Payments.'' I now recognize myself for 4 minutes for an opening statement. Over the past several months, the coronavirus has spread devastation across our country. It has killed more than 110,000 Americans, it has robbed millions more of their jobs, and it has left Americans wondering how they will pay for even the most basic necessities such as rent and food. In response to this crisis, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Among its many provisions, we included economic impact payments: $1,200 for every adult making less than $75,000 a year, with $500 per parent and child. That was all with the intent to provide immediate relief to those most in need of it. The CARES Act was passed into law on March 27th. Today is June 11th: 76 days later, some Americans are still waiting on their so-called immediate relief. Many of those people who needed the help the most were the last to receive it. Although the IRS and Treasury acted quickly to distribute payments to Americans, they ran into problems. Some of those problems were foreseeable; they exist due to long-standing inequities and deficiencies in our banking system. We on this committee, and on the task force, have spent considerable time in this recent session searching for ways to improve financial inclusion. But the simple truth is that millions of Americans still lack access to the traditional banking system. The FDIC has said that nearly 8.5 million households don't have a bank account, often because bank accounts are too expensive. Americans without bank accounts receive their economic impact payments much, much later than those with bank accounts and direct deposit. And to make matters worse, many of those without bank accounts have had to pay check-cashing fees, exorbitant fees, once they did receive their checks. A family struggling to make ends meet, while not having access to bank accounts, is difficult enough in normal times. In times like these, it can be the difference between a refrigerator full of groceries and going to bed hungry. With all of our resources in this country, no family should have to experience hunger simply because they don't have a bank account. So today, we will hear testimony on ways to improve the delivery of direct benefit payments to Americans. FedAccounts, consumer accounts at the Federal Reserve, have the potential to provide free access to bank accounts for the millions of Americans currently without one, giving them immediate access to Federal benefits. Further, we will explore the ways in which new technology that many of us now use every day, such as the digital wallets on our phones, can improve inclusion and efficiency in programs like this. This conversation is timely and necessary. The House passed another set of economic impact payments in the Health and Economic Recovery Omnibus Emergency Solutions (Heroes) Act, to continue providing this important relief to Americans. We must learn from the immediate past and the mistakes we have recently made to ensure that every American gets the access they need and deserve. And I look forward to today's discussion. I would now like to recognize the ranking member of the task force, my friend from Minnesota, Mr. Emmer, for 4 minutes to give his opening statement. Thank you. Mr. Emmer, I think you are muted. If you would look at that row of icons just above the picture frame-- Mr. Emmer. It is the Financial Services Committee's Task Force, and I warned Petrina when this started--you would think we would be better with the technology, but here we go. So, you missed all the wonderful things I said about you, Mr. Chairman. I want to thank you, my colleague from Massachusetts, for moving this task force ahead, and making sure it continues to meet. I appreciate you, and I appreciate all of your staff who are making these things happen, but just for the record, I want it be known that I think this is outrageous, ridiculous, and totally unnecessary. I think we should be in Washington doing our job, and I hope that people will see that soon. The conversation today stands to be very insightful on two topics: the ways the Federal Government can better utilize technology to increase efficiency in delivery of government services; and the concept of a centrally-backed digital currency. I appreciate and look forward to our witnesses' thoughts on these subjects. Two months ago, I wrote a letter, along with my colleague, Darren Soto, urging Treasury to take additional steps to leverage everything that American ingenuity, entrepreneurship, and innovation has to offer. As co-Chairs of the Blockchain Caucus, we have been diving deep on all of the technology and what it has to offer. It could help to serve both topics of this hearing that I mentioned previously. In addition, a wide array of technologies could help the Treasury distribute the remaining stimulus payments that have not been distributed yet, and I urge them, and each agency, to consider new technologies that could help the agencies operate more efficiently and more quickly. I want to turn now to the second topic, and what I think could stand to serve as the sole topic of a hearing like this: a centrally-backed digital currency. Representative Hill, who now serves as ranking member of our Subcommittee on National Security, International Development and Monetary Policy, highlighted this topic many months ago to the Federal Reserve, and did it in a bipartisan fashion. Since then, I have heard that the Fed has been working to research and develop the concept, a process which I emphatically support, but unfortunately they have not received the level of public consideration and transparency that I think is fundamentally necessary for such a pursuit. The dollar is changing, and Americans deserve a full accounting of the work being done and the considerations they will have to make in ensuring that their leaders continue to guarantee their freedom and their methods of exchange. In fact, cash is a public payments infrastructure available to all citizens without any need for permission. Currently, cash works solely by the bearer of the instrument. As the economy moves increasingly online, the use of cash will diminish. To engage in electronic commerce, citizens need an intermediary in most cases, including many cryptocurrencies. To be a truly permissionless digital cash however, a digital dollar must have the same attributes as physical cash. Anything less would simply create a new intermediate, and it could even be one offered by the government in competition with private financial institutions. It is American values like freedom, privacy, openness, and permissionless entrepreneurship that have led us to dominate global commerce and innovation. We should have the courage of our convictions to build these values into a digital dollar, and not to emulate systems like China's new digital wand, which is closed, centralized, surveilled, and permissioned so that access can be denied and payments blocked by those in power. Electronic cash will be as susceptible to illicit use as the dollar is today. The same rules that apply to physical cash that should apply to a digital dollar. While this may not go far enough for some, the only way to go further would be to create a permission closed and surveilled system like China's. I hope the conversation surrounding the digital dollar today takes into account these essential freedoms that Americans may often take for granted, but must also ensure to continue on as we move into this new era. As I have said from the beginning, technologies like this can empower individuals and make their government more accountable directly to them. We can't cede this power to the government at the expense of the individual. With that in mind, I appreciate the witnesses' time. Mr. Chairman, I yield back. Chairman Lynch. The gentleman yields back. The Chair now recognizes the gentlewoman from California, the Chair of the full Financial Services Committee, Chairwoman Waters. Okay. We are going to wait for Chairwoman Waters. I now recognize the ranking member of the Full Committee, the gentleman from North Carolina, Mr. McHenry, for 1 minute. Mr. McHenry. Thank you, Mr. Chairman, and thank you, Mr. Ranking Member. Thanks for holding this hearing. And I want to thank our witnesses for being available to us digitally. I think when we look back at this period of time, it will be viewed as a great accelerator, especially when it comes to technology enhancing and quickening technological trends across-the-board. What I mean by that is it has forced us to adopt a new way of living right now that only a few months ago seemed years away. Think about, for example, a remote work force. That was commonly viewed as an option for some, but now it is a default for all of us--or most of us. Banking is undergoing a fundamental change as well. To meet these challenges, we have to change our mindset about how we build for tomorrow. We need to explore advanced digital tools to make banking easier, safer, and especially, more inclusive. So, thank you for the hearing today. Thanks for the engagement, and I look forward to the questions. Chairman Lynch. Thank you. The gentleman yields back. The Chair now recognizes the gentleman from Georgia, Mr. Scott, for 1 minute. Mr. Scott. Thank you, Chairman Lynch. And let me just echo everything that has been said. We have this new and exciting technology to use to be able to sustain our American consumers. As you will recall, in the 2008 dilemma that we had, our crisis, it took an extraordinarily long time to even get the help down to our constituents. This time, we did it a little quicker with this pandemic, but not quickly enough. I look forward to our great panel of witnesses who will be providing information in terms of how we can really take this exciting technology and bring it home and deliver better reception to our American people. Thank you, Mr. Chairman. Chairman Lynch. I thank the gentleman. Today, we welcome the testimony of an esteemed panel of experts. First, Mehrsa Baradaran, a professor of law at the University of California, Irvine. Professor Baradaran has written extensively about financial inclusion and inequality, including the books, ``How the Other Half Banks: Exclusion, Exploitation, and the Threat to Democracy,'' and ``The Color of Money: Black Banks and the Racial Wealth Gap.'' We want to welcome you, professor. Second, the Honorable Chris Giancarlo, senior counsel at Willkie Farr & Gallagher, and the former Chairman of the U.S. Commodity Futures Trading Commission. Mr. Giancarlo also leads the Digital Dollar Foundation, which is dedicated to exploring options for a central bank digital currency. Welcome. Third, Jodie Kelley, the CEO of the Electronic Transactions Association, which represents over 500 companies in the electronic transactions space. Ms. Kelley also previously served as Vice President and Deputy General Counsel of Fannie Mae. Welcome. Fourth, Morgan Ricks, professor of law at Vanderbilt University. Professor Ricks has worked extensively on financial reform, including the FedAccounts proposal, and from 2009 to 2010, was a senior advisor at the Treasury Department. Welcome to you, also. Our witnesses are reminded that your oral testimony will be limited to 5 minutes. A chime will actually go off at the end of your time, and I ask that you respect the members' and other witnesses' time by wrapping up your oral testimony. And without objection, your prepared statements will be made a part of the record. Professor Baradaran, you are now recognized for 5 minutes to give an oral presentation of your written testimony. STATEMENT OF MEHRSA BARADARAN, PROFESSOR OF LAW, UNIVERSITY OF CALIFORNIA IRVINE SCHOOL OF LAW Ms. Baradaran. Thank you. Chairman Lynch, Ranking Member Emmer, and members of the Task Force on Financial Technology, thank you for calling this important hearing on this critical issue. Last week, hundreds of people waited for hours in a single- file line for an ATM at a New York City branch of KeyBank, the only bank branch offering unemployment benefits without fees. The New York Times reported that every day from dawn till dusk, since the beginning of the crisis, there has been a long line. The New York Post reported that the crowd, mostly made up of people of color, had come from the five burroughs amidst a pandemic, and rolled the dice on their health, just to avoid getting gouged with surcharges at out-of-network banks. Mr. Quan, a former Food Network ``Chopped'' champion, who is now out of work, said he biked from Chinatown to save $3, which can sometimes mean a meal eaten or not. Mr. Flores, a 45-year-old, out-of-work line cook from Queens, waited nearly 3 hours before getting to the teller. He said, ``I feel tired, but I need the money.'' Mr. Flores, who has a wife and 2 children, withdrew $500. He pays his $1,500-a- month rent in Astoria in installments to his landlord because he has to make sure his family has enough to eat. Ms. DeLeon, after about 3 hours in line, finally withdrew $1,000, but she needed the full $1,500. She said, ``My feet hurt, my back hurts,'' but she has to go back in line the next day. These problems are not new. In fact, I have been shouting into the void of academic research for a decade about how our banking system leaves out some of our most vulnerable communities--Black communities, Brown communities, low-income communities, and rural communities. Believe it or not, the problem has gotten even worse since I began researching these issues. Over the last 10 years, as banks have become bigger and more profitable, over 93 percent of bank closings were in low- to middle-income (LMI) communities. Rural America has lost 50 percent of its banks. With the Fed's recent approval of the SunTrust-BB&T merger, an estimated 700 more branches will likely be closing soon, mostly in the south and the southeast, and many of these areas will be lower-income areas. Even in places where the banks are plentiful, like New York City, there are barriers: high fees, which are primarily paid by low-income people; slow payment processing; and the lack of trust in banks. Those who are unbanked or underbanked, which is up to 25 percent of the population, spent time and money in line to pick up their checks, and then in another line to pay their bills in cash to the electricity office, the water office, and the landlord, and in line to purchase money orders so they can mail their bills on time, and on and on and on. Those of us with enough of a financial cushion, who put our bills on autopay and easily switch between syntax apps and credit cards, might need some financial education to understand the difficulties faced by our fellow Americans, like having to bike from Queens to Manhattan to avoid bank fees just to use our money. This crisis will push many more families onto this thin ice. The simple problem is this: The U.S. payment system is only available to banks and their customers. If you are outside of it, you pay a toll. I urge Congress to open up these tracks on which our nation's commerce runs. To everybody, Congress need not reinvent the wheel. Congress already created a public system, the Federal Reserve. The Fed's explicit charter is to serve the public interest and to increase the integrity, efficiency, and equity of the U.S. payment system. That was a mandate that Congress gave. I urge Congress to ensure equal access to this important public utility. I believe the most effective way to do this is through a partnership between the Fed and the postal offices of this country. On the back end, these deposits would be handled by the States and secure Central Bank as my colleague, Morgan Ricks, will explain. On the consumer side, you could go to the local post office, deposit your money, and take cash out of the ATM without fees. You could set up automatic bill pay through online or mobile banking, get a debit card, and use it for online shopping, et cetera. FedAccounts, digital wallets, all of those are essential and will be great, but we need to close this cash digital divide first. Between 20 to 40 million Americans don't have broadband. A lot of the elderly are not comfortable with mobile payments or don't have mobile phones. To illustrate the point, I have another story that happened in Duncan, Arizona, when they lost their only bank. The nearest bank was 40 miles away. Business revenue shrank by 20 percent when they lost their bank. American Banker journalist, Kevin Wack, went to the town and began talking to residents. One hotel owner said that she just walks over to the post office, buys a single stamp, and requests cash back, which is cheaper than patronizing any of the town's ATMs. An electricity cooperative in town uses the post office for their business accounts rather than keeping currency on hand or driving far away. Thankfully, he says, the post office is the unofficial bank. Another resident said, ``It has made me think, why shouldn't the post office start to fill the role of small banks in these towns?'' The last thing I will say, and then I will close, is that the post office is America's most trusted institution, according to a new marketing firm, and it was designed that way by our first President, George Washington, in 1792. For over 200 years, the USPS has maintained its public-serving mission by offering equitable services to all. Thank you. [The prepared statement of Professor Baradaran can be found on page 30 of the appendix.] Chairman Lynch. Thank you. Mr. Giancarlo, you are now recognized for 5 minutes. STATEMENT OF THE HONORABLE J. CHRISTOPHER GIANCARLO, SENIOR COUNSEL, WILLKIE FARR & GALLAGHER, AND FORMER CHAIRMAN, U.S. COMMODITY FUTURES TRADING COMMISSION Mr. Giancarlo. Thank you, Chairman Lynch and Ranking Member Emmer, and also, thanks to Chairwoman Waters and Ranking Member McHenry. I would like to begin with three observations from my time in public service. First, much of America's physical infrastructure, its bridges, tunnels or airports that were once state-of-the-art in the last century, as we have all seen, have been allowed to age, deteriorate, and become obsolete in this century. Well, the same is true about some of our financial infrastructure. Methods of payment and settlement, shareholder and proxy voting, and investor access to disclosure that were once state-of-the art in the 20th Century are showing age and limitations in this new 2lst Century. Nothing reveals the limits of our accounts-based financial system more starkly than the current COVID-19 pandemic, when tens of millions of Americans are waiting a month or more to receive these payments by paper check. My second observation is that we are certainly entering a new era when things to value, like money and agricultural and mineral commodities, CompTraks, stock certificates and land records, and cultural assets like art and music and votes, and even personal identities, will be stored, managed, and moved around in a secure way from person to person without central validators. It is done by collective cartography and a decentralized network of computational algorithms. And my third observation is that unless we act, this coming wave of innovation will put enormous strain on our aged financial systems. This task force is reviewing several ideas for digital dollar electronic cash payments. They look at digital dollars in terms of benefits distribution and financial inclusion for existing account-based systems. Today, I would like to discuss with you a far more fundamental digital dollar proposed recently by the Digital Dollar Project. It is a U.S. central bank digital currency, or CBDC, as it is known. This type of digital dollar would be a new additional form of money. It would be a digital bearer instrument with the same legal status as the dollars in one's purse, but on a mobile device. It would operate alongside existing forms of money distributed through the existing two- tier banking system open to new entrants and potentially recorded by distributed ledger technology. This type of CBDC would increase financial inclusion by broadening access to services through digital wallets on smartphones, and would enable the sending of COVID relief immediately to the electronic wallets of underbanked populations and expand their ability to access financial services and to use e-commerce platforms that do not accept physical cash. Yet, this type of digital dollar is about more than financial inclusion in a crisis. Today, most of the world's tradeable commodities and contracts are priced in U.S. dollars. Tomorrow, they will be digitized, tokenized, and coupled with algorithmically-driven smart contracts. We must prepare to modernize the dollar from a simple analog instrument into a digitized unit of account, one that measures, supports, and transacts those same digital commodities and contracts. We must future-proof the dollar today for that digital tomorrow. Doing so is in the national interest. It will spark a creed of new industries and economic growth. Yet, crafting it will be an enormous undertaking. It must be done carefully, thoughtfully, and deliberately. Something that is worthy of the dollar's global importance can't be rushed. It will take time to get right, but now is the time to get started. The recent launch of SpaceX reminds us that the United States explored outer space through a series of pilot programs. They were called Mercury, Gemini, and Apollo. So, too, we should explore a digital dollar through a series of pilots. The Federal Reserve is already looking at central bank digital currency-- Chairman Lynch. The gentleman's time has expired. Mr. Giancarlo. Thank you very much. [The prepared statement of Mr. Giancarlo can be found on page 39 of the appendix.] Chairman Lynch. Ms. Kelley, you are up next for a 5-minute presentation of your written testimony. Thank you. STATEMENT OF JODIE KELLEY, CEO, ELECTRONIC TRANSACTIONS ASSOCIATION (ETA) Ms. Kelley. Thank you, Chairman Lynch, Ranking Member Emmer, and members of the Task Force on Financial Technology. My name is Jodie Kelley. It is my privilege as CEO of the ETA to speak with you today on how the modern payments industry is using digital tools to deliver CARES Act stimulus money to the American people. ETA is a trade association that represents the broad group of companies that provide electronic products and services, including credit and debit cards, peer-to-peer products, mobile wallets, and other forms of digital payments. Ours is an industry that in North America alone, moves over $8.5 trillion a year in card and P2P payments securely, reliably, and quickly. During the 5 minutes I will speak today, over 1.3 million transactions will be processed. It is highly regulated, highly competitive, constantly innovating, and investing and leveraging new technologies to create better products and services. On behalf of ETA and its members, thank you for the opportunity to participate in this important discussion. The unprecedented challenges caused by the pandemic have appropriately caused policymakers not only to move quickly to address the immediate crisis, but also to ask how we can position ourselves to do even better in the future. That is a particularly important question when it comes to those who are most vulnerable. I am honored to be part of such a distinguished panel who bring a variety of perspectives on ways in which technology may be brought to bear to advance financial inclusion, and most relevant for today's hearing, to further improve delivery of stimulus money to those who need it most. These are important conversations that have potentially broad-reaching implications. The perspective I bring today is on what is happening now and the ways in which the electronic payments industry is bringing to bear the innovation, the technology, and the know- how it has developed over decades to deliver these stimulus funds quickly and securely. I am proud of the role that our industry is playing in delivering both economic impact payments and much-needed unemployment benefits. I would just like to highlight today in particular a few ways in which that is happening. The first is through the use of prepaid cards. This is a simple but effective solution which has long been deployed to distribute roughly $140 billion per year of government benefits, including SNAP and Social Security payments. Nearly all States also use these types of cards to distribute over $20 billion in unemployment benefits a year. And for consumers, these prepaid cards work. They are network- branded. They can be used to make purchases online or in stores in the same way a credit or debit card can be used. The funds on them are FDIC-insured, and critically, they carry the same consumer protections as credit and debit cards do. Most notably, they are protected from liability if the cards are lost or stolen, or if fraudulent charges are made on the card. And for those Americans with a smartphone--over 80 percent of us--there are additional benefits. These cards can be loaded into mobile wallets, bringing added convenience and additional security, and both the cards and the mobile wallets can be used simply by tapping at the point of purchase. There is no need to sign anything, no need to touch anything that is not your own. Surveys of consumers during the pandemic made clear that that provides peace of mind. I would also like to touch on peer-to-peer (P2P) payments such as PayPal, Venmo, and CashApp. These were also used to distribute stimulus dollars. These apps are popular. In 2019, they were used to transfer over $300 billion. And their popularity is growing, and it is growing because these products have quickly evolved in response to consumer needs. Individuals can now have their paychecks, their tax refunds, or their benefits payments sent directly to them. Consumers can load cash on the P2P services, they can store money, they can use them to make purchases, and they can use them to reload prepaid cards. As a general matter, consumers are not charged to use these services, and because they can be accessed through a smartphone, again, there is broad reach and it is easy for individuals to use them. Now, in my time this morning, I have only touched on the innovation that is happening in the electronic payments industry. Our members are investing tens of billions of dollars annually in research and development that harnesses and deploys technologies, including blockchain, to make it easier for individuals to accept, hold, and use money securely. And we will continue to integrate new ideas and technology to make the current global payment system stronger and safer. The future is exciting, but we also appreciate the opportunity, as we look forward to the possibilities, to take a moment to discuss what is already happening and the very tangible and real ways that current products and services are being deployed to meet the needs of individuals, including the underserved. We are keenly mindful of how important that is. So on behalf of ETA and our member companies, thank you, once again, for the opportunity to participate. I am happy to answer any questions that you may have. [The prepared statement of Ms. Kelley can be found on page 99 of the appendix.] Chairman Lynch. Thank you, Ms. Kelley. Professor Ricks, you are now recognized for a 5-minute presentation of your written testimony. Thank you. STATEMENT OF MORGAN RICKS, PROFESSOR OF LAW, VANDERBILT UNIVERSITY LAW SCHOOL Mr. Ricks. Chairman Lynch, Ranking Member Emmer, and members of the task force, thank you for the opportunity to testify today on this vital topic. My remarks will focus on the FedAccount proposal. The coronavirus crisis has highlighted critical shortcomings in the U.S. system of money and payments. The FedAccount proposal offers a compelling way for Congress to address these shortcomings. FedAccounts would improve the delivery of relief payments to American households during crises, and they would offer an array of other transformative benefits as well. So, what are FedAccounts? FedAccounts are digital dollar balances maintained on the books of the Federal Reserve. It is important to understand that the Fed already offers accounts to a small, favored set of clients. These accounts are called reserve balances, which are dollar balances maintained as ledger entries on the Fed's electronic books. The Fed's digital dollar accounts are highly attractive, offering instant payments, higher interest than ordinary bank accounts, and full government backing, no matter how large the balance, with no need for deposit insurance. But these accounts are currently restricted to an exclusive clientele, consisting of banks, certain other large financial institutions, and governmental entities. What this means is that the Fed currently issues two types of money: first, it uses paper dollars, an open access resource available to all; and second, it issues digital dollars, which are restricted to a small number of privileged financial institutions. This creates a striking asymmetry at the core of our monetary framework, and Congress should do away with it. Specifically, Congress should direct the Fed to give the general public, individuals, businesses, and institutions the option to hold digital dollar accounts at the central bank. Under the version of the proposal that I and my co-authors have described, FedAccounts would offer all of the functionality of ordinary bank accounts, with the exception of overdraft coverage. It would come with debit cards, for example, and they would support online bill pay. But the Fed would charge no fees and would not impose any minimum balance requirements. Moreover, the Fed could partner with the U.S. Postal Service to serve as a ubiquitous, ready-made, physical branch network for these accounts. The FedAccount program would transform digital dollars into an open access resource, a form of public infrastructure just like the paper dollars that the Fed issues. And this would offer a range of major public policy benefits. First, it would foster financial inclusion. If properly structured, the FedAccount program could bring millions of households into the mainstream of money and payments. This would not only lubricate future relief payments during crises, but it would also improve the economic well- being of low- and moderate-income families. Second, it would enhance consumer protection by lessening a consumer's need for expensive non-bank credit products, such as payday loans. Third, it would reduce the likelihood of financial crisis by displacing unstable deposit substitutes, which are a major source of instability in our financial system. Fourth, it would speed up payments. When it comes to payment speed, the U.S. lags behind much of the rest of the world. Payment delays are costly for the economy as a whole and are especially so for households living paycheck-to-paycheck. FedAccounts would ameliorate this problem, because all payments between FedAccounts would clear in real-time on the Fed's books, just like interbank transfers have for decades. Fifth, FedAccounts would improve monetary policies, because the Fed's interest rate adjustments would be transmitted directly to a wide swath of the public rather than just to banks, as they are today. Sixth, the FedAccount program could greatly reduce payment system tolls, because the Fed presumably would not charge interchange fees to merchants accepting its debit cards. This would be a boon to businesses large and small. Finally, FedAccounts would help maintain the dollar's status as the dominant global currency. As we speak, China is piloting its digital Yuan. If we don't innovate, we risk falling behind. Far from straining fiscal resources, FedAccounts would likely generate revenue for the Federal Government, provided the program attracted profitable large accounts and not just small accounts. Keep in mind, the Fed is a moneymaker for taxpayers. It remits tens of billions of dollars to the Treasury Department every year. With FedAccounts, those remittances would probably increase. To be sure, the FedAccount program will present implementation challenges. Cyber security, fraud prevention, and privacy issues would need to be addressed. However, as and I and my co-authors have described in our writings, these challenges are surmountable. Moreover, like other digital currency, it would rely primarily on efficient, reliable systems that the Fed has used successfully for decades, and FedAccounts would be fully integrated and seamlessly interoperable with the mainstream payment system. To conclude, FedAccounts could deliver an array of transformative public policy benefits, both in and out of crisis periods. The system of money and payments is a public good. It is critical public infrastructure, akin to highways and the legal system. The FedAccount proposal would supply this resource directly to the general public. It deserves serious consideration from Congress. Thank you again for the opportunity to testify today. I look forward to answering your questions. [The prepared statement of Professor Ricks can be found on page 114 of the appendix.] Chairman Lynch. Thank you, Professor Ricks. At this time, I would like to go back to the Honorable Mr. Giancarlo. Sir, I inadvertently shortened your time. You had another 45 seconds. So, I apologize to you for interrupting. There was a rogue chime that I heard in my headphones, and I cut you short. So, how about if I give you another minute? If you have any other ideas you would like to amplify on some of the things you raised, I would be happy to recognize you for 1 minute. Mr. Giancarlo. That is very kind, Mr. Chairman. There is a point I would like to make, which is that what we would like to see is exploration of the idea of a U.S. CBDC through a series of pilot programs. I mentioned the ones that we used to explore space, and I think a similar approach should be taken here. Throughout our history, America has been a leader in innovation. Whether it was launching the space program or building the internet, we brought to every one of those innovations our core values: the rule of law, individual liberty; free enterprise; and, importantly, the right to privacy. Around the world, CBDC innovation is gaining peak global momentum, and the world is asking what role America is going to play and whether our core values will be brought to bear. The choice is either that we take a leadership role or that we accept that others will take a leadership role and they will put their values in this new innovation. I think we have to choose to lead, and I think if we do, we will increase financial inclusion, enhance democratic values, and further improve the dollar for more generations to come. Thank you for that additional time. Those are my final remarks. Chairman Lynch. Thank you, sir. I appreciate that, and again, I apologize. I will now recognize myself for 5 minutes for questions. Based on the conversation today, a few things are clear. We have millions of Americans who are in need of help to weather this storm currently, and we have millions of Americans who are being shut out of the banking system, making it harder to get aid to them; but I think the panel here has described some measures that could certainly mitigate or possibly eliminate the challenges. One of the things I worry about is, even looking at the Fed right now--let's go to the FedAccounts issue. I have been watching over these last few years how the Fed has tried to go to this FedNow program, which is actually a miniature version of what we are talking about with FedAccounts. For those who are not familiar with it, the FedNow accounts were really meant to provide immediate relief to banks. The Fed is a bank to the banks, and they were trying this whole framework where they would do for the banks what FedAccounts would do for citizens. That process, the rule took 3 years, and now the implementation--I think we are talking about 7 or 8 years for the Fed to upload that program. So I want to ask, Professor Ricks and Professor Baradaran, what are we talking about here in terms of getting this up and running? We have this desperate need out there now that we all recognize and the structural inequities here. What are we talking in timeframe if we really focus on this, put resources towards it, best-case scenario, what do you think that looks like? Ms. Baradaran, I would like to hear from you first, if possible. Ms. Baradaran. I think it will take as long as we put our priority into it. If we want FedAccounts through postal banks, we can do that. We have the technology. There are a few things around the edges that we could do. We would need ATMs at certain post offices. We would need the Fed to do real-time payments and other types of efficiency things. But those are things that are well within our technological capacity, our institutional capacity. These are things that we can and could have done a year ago, so I think we could do that very quickly. Chairman Lynch. Okay. Thank you. And, Professor Ricks, could you amplify on that a little bit? Mr. Ricks. The FedNow initiative was an outgrowth of the faster payments initiative that the Fed started in or around 2015, and we have been waiting a long time for this. There have been improvements. The clearinghouse, the private consortium has taken measures to improve payment speed and yet we are still lagging behind the rest of the world. The Fed itself has been processing real-time instant payments between accounts on its own for many, many decades through the Fed wire system, which is extremely efficient. Accounts on the Fed's own books are processed--the payments between them are processed extremely quickly in real-time. If you could put more accounts on that system, you will have more real-time payments. Now, how long does that take? Well, the Fed has been opening accounts on its own books since its inception and processing payments between them. Retail operations are a different matter, and that would take some time for the Fed to build out that infrastructure; but in the meantime, it could rely on contracting with private sector contractors, external service providers in the banking system itself to assist until it could build its own infrastructure. So if it is a priority, it could be done very, very quickly. Chairman Lynch. That is great to hear. Ms. Kelley, in your testimony you mentioned Venmo and some of the new apps that are out there, and new technology that really has expanded access to people who are comfortable with that technology and those who have access to these smartphones. It is really amazing. Do you see any gaps in sort of our technology infrastructure that might be needed in order to push this out, to get that segment of the population that is not participating right now? Ms. Kelley. Thank you. That is a great question. What I would say is, 80 percent of Americans have smartphones and have great facility with them. Clearly, there is still a gap, with the 20 percent who don't, but the number of smartphones is increasing, the use of them is increasing. I just also want to highlight, for those middle- and low-income consumers who may not have them, they have indicated they prefer debit cards, they like using debit cards, so there is a combination of technologies, I think that is well-positioned to deliver. Chairman Lynch. That is great. Thank you. My time has expired. I will now recognize the ranking member of the task force, Mr. Emmer, for his questions. Thank you. Mr. Emmer. Thank you, Mr. Chairman. Hopefully, you can hear me. I want to thank the panel for being here today, and participating under these unusual circumstances, and I reiterate that I hope we get back to work in Washington, D.C., and do our job because if we don't want to show up, I am sure there are a lot of people who would be happy to replace us. This one is for Mr. Giancarlo. Under your proposed plan-- and that is what I am going to call it, your White Paper I think that you recently put out--would the Federal Government have the technical capability to deny access to or shut down the accounts of persons who are abiding by the law? Mr. Giancarlo. Simply, no. We have a long tradition of privacy rights. It is enshrined in our Constitution in the Fourth Amendment, and I think actually if we do CBDC right and bring to it those values, I think an American CBDC could be the killer app compared to other sovereign CBDCs where there is not the same expectation of privacy from government surveillance, such as ones coming out from nondemocracies. So, I think programming into a central bank digital currency, a level of individual privacy that accords with our society's value is vitally important and actually could be very attractive in a global setting. Mr. Emmer. That is great. Continuing with that, Mr. Giancarlo, under your proposed plan, would personal details from payment activities be available to law enforcement without a search warrant, either as names of senders and recipients, amounts sent, or any other revealing metadata generated by digital dollar payments? Mr. Giancarlo. I would certainly hope not. Mr. Emmer. That is not the intent, right? Mr. Giancarlo. That is certainly not. Mr. Emmer. Okay. Mr. Giancarlo. We value privacy very highly. It is interesting, if you look around the world, say, in Europe, for example, the Europeans are very sensitive about commercialization of their data, and yet in their law, the General Data Protection Regulation (GDPR), they don't have the same restrictions against government surveillance. In the United States, we are more comfortable with commercial use of our data, but we are very sensitive about government exploitation. We have it enshrined in our Constitution. I think if we make sure that the jurisprudence is developed around this and those values are reflected in the U.S. digital dollars, the central bank digital currency (CBDC), I think it could be very attractive on a global and a domestic basis. Mr. Emmer. At some other time, I would love to have more discussion with you about the idea that Americans are more comfortable with the commercial use of our data. I disagree with that. I think this is going to be a place where we are going to have to do some work in terms of how much information Americans actually have about how their personal data is being used for commercial purposes, and I think that is a different frontier. But I do agree with you on the privacy issues, obviously, and that is why I wanted you to emphasize that. Thank you. Ms. Kelley, if I could change gears a little bit, I wanted to take this opportunity to praise the Administration for the speed in which the Administration got the majority of the stimulus payments out the door. This has clearly helped Americans who need the money the most. With that said, I think it is essential that we work to get money to the remaining 35 million American citizens who have not received their stimulus payments as fast as those others. Many of these citizens are unbanked and have bills coming due and need the money. Treasury, through the Bureau of the Fiscal Service in the IRS, has attempted to reach citizens through existing programs. It seems that Treasury could look at alternative payment solutions, like new digital channels that provide instant access to funds to reach these unbanked individuals. What is your suggestion for Treasury to identify more effective, efficient modern payment solutions, aside from prepaid cards and sending paper checks? Ms. Kelley. Thanks for that question. We agree completely that it is critical to get these dollars in the hands of those Americans who need them and to do so quickly, and we are mindful, as you are, of the fact that so many have not yet received the payments. We agree that checks are not the right way to go for all of the reasons that the panels have discussed. It is slow, you then have to cash the checks, which can be expensive and difficult, and then once the checks are cashed, you have to do something with the cash. We think in the very short term, leveraging existing programs is the way to go. It works. We know it works. It is being used and has been used successfully. But we agree that industry should work in partnership with government to determine ways in which we can deploy additional technologies, both to get these current payments out but also to position for the future. But for now, we think both of the mechanisms that we described are actually working relatively well and, because they are available and immediate, would be the things that we recommend turning to in the short term. Mr. Emmer. Thank you. Thank you, Mr. Chairman. My time has expired. Chairman Lynch. The gentleman yields back. The Chair now recognizes the gentleman from Georgia, Mr. Scott, for 5 minutes. Mr. Scott. Thank you very much, Mr. Chairman. As I am listening to this exciting and exuberant conversation, I am concerned about our inability so far to be able to address what I think is a very pressing issue, and that is the lack of financial education, particularly for our younger generations. When I listen to the information that our panelists are passing out, I am aware of how rapidly we are moving to a cashless society, without cash, and doing this without any regard to how, do we bring our American people along with us, how do we bring along our younger generations? Did you all know, for example, that out of 50 States in our nation, only 17 of our State school systems even offer one course in financial education or financial literacy? And then, with this technology coming in, as wonderful an asset as it is, it is making our financial system far more complicated. And as you move from a cashless society, there are certain segments of our population who are not even on board the train: 65 percent of African Americans conduct their financial transactions in cash. When you put that together with only 17 of our State school systems even offering one course in financial education, we need to begin to draw our attention to it and make sure we are bringing our full nation along with us as we move in what is warp speed with this technology. Having said that, let me start with you, Ms. Kelley. With the 2008 crisis that came along, it took 10 weeks to get the stimulus checks out. With this crisis, it took 2 weeks. Now, that is a really good improvement. What do you attribute that improvement to? Ms. Kelley. It is definitely true that as we have moved forward in time, our ability to push money out has improved with it, and we are moving more quickly this time than we did in the last instance that you referenced. But I would also say, as others have said, it is equally true that they are not moving quickly enough, and that there is more that needs to be done. And there are different things that we are doing this time, like increasing the use of prepaid cards, and increasing the use of digital tools, including P2P, that have helped with that clearly and that can help more if we rely on them more, if we rely on them further and really kind of leverage what we are doing well now to do better. Mr. Scott. Good. Let me move to another area that I have been working on, and that is frauds and scams as we have moved along, particularly with the stimulus checks, and using--the thieves, the scammers out there are using our advances in technology to create even more creative ways of doing the scams. And I would like to ask you--and, Mr. Giancarlo, if you are there, I know that you were a former Chairman of the Commodity Futures Trading Commission (CFTC), and it was wonderful to work with you over in my committee, CEAC, on several of those issues, and I know the CFTC has been very interesting; but how can--what do you all see on how we can get greater safety and a concern with the different techniques of scams that are out there? Chairman Lynch. The gentleman's time has expired, but we will allow Mr. Giancarlo to answer the question. Mr. Giancarlo. Thank you very much. I don't see myself on the screen, so I hope you can see me. When I was at the Commission, with your great support, we really had a very strong enforcement program because, as the technology moves on, the fraudsters and the scammers move along with it. And it is critically important that regulatory agencies that have enforcement efforts and have enforcement powers stay ahead of the technology so they can stay ahead of the next generation of fraudsters and scammers. Mr. Scott. Thank you. Mr. Giancarlo. Thank you. Chairman Lynch. Thank you to the gentleman, Mr. Scott. Next, we have the Full Committee ranking member, the gentleman from North Carolina, Mr. McHenry, for 5 minutes. Mr. McHenry. Thank you, Chairman Lynch. My question is for you, Mr. Giancarlo. Can you explain why the digital dollar is such an important tool? Just the top line here, in a succinct way, what does the digital dollar have to do with financial inclusion in government subsidies? Why don't we start there? Mr. Giancarlo. Well, it is so important, for the reasons we are talking about, because we have populations that are underbanked and unbanked, and they are a diverse population. There are a lot of reasons. Some of those are young people who just have not yet come into--they don't have mortgages and they don't have automobiles, and they have very rudimentary banking activities, but they are very skilled with smartphones and mobile devices, and that is a way of reaching them. It is about reaching--it is about onramps into the financial system and making them as simple and as accessible as possible. And for a new generation, this is how--you go to where they live, and this is where they live. They live in an underlying mobile environment. Let's bring it to them. Mr. McHenry. Okay. But many folks live in rural America, and they live in areas that I like to refer to--I think they should be referred to as, ``banking deserts.'' Just like we have food deserts in urban areas, we have banking deserts in certain communities in urban areas, and certain communities in rural areas. And so if you travel across the country, you recognize this, and you see they don't have access to branches. So, how would something like a digital dollar help these folks? Mr. Giancarlo. During my time with the Commission, I traveled around the country, and I met with folks in rural areas, and the big issue for them is broadband access. I met with agricultural producers who use their mobile devices to look up prices that are trading in places like Chicago for agricultural commodities to know that they are getting the right price at the grain elevator. Once they go out of broadband access or wireless access, then they have trouble with that. They are sophisticated as well. We need to get them access; but if we do, the lack of a branch bank is not insurmountable because they can have that access on their mobile device. Mr. McHenry. Okay. So to that point, access to broadband and access to a mobile phone, would that access issue be a barrier to accessing the digital dollar? How do you remedy that? Mr. Giancarlo. No. I think it would actually be a direct onramp to a digital dollar. What is a digital dollar? It is the same thing as the dollar in your pocket, only it is on your mobile device. And we have a big problem with mobile access in rural areas, but if we solve that, the facility that people have with the mobile phone is great. There are populations--and I think Mr. Scott mentioned this--with folks who have just been outside the banking system but are very comfortable with the notion of bearer instruments and fiat currency. They may also find that a digital currency is a starting point to come into greater financial inclusion easier than actually going to a bank. Even if there was a bank in their district, they might find a mobile device to be an easier access point. Mr. McHenry. Okay. So what you are suggesting is this could be a major answer for people accessing even basic governmental benefits, not sophisticated and complicated issues of commodities trading, but just basic access to the benefits that they are rightfully due under the law; is that-- Mr. Giancarlo. Yes, it is. And I think that, if we think about benefits, the cost in the infrastructure perhaps for certain populations making mobile devices available may be lower costs than actually trying to make bank accounts available to them, at least as an entry point into CBDC. Mr. McHenry. Okay. So what about our competition with China, can you touch on that? How does it play a role in this? Mr. Giancarlo. I mentioned this in my opening statement. I think it is about values. Look, China is going to do what China is going to do, and they see this as an opening. They have a phrase in China called, ``passing on the curve.'' The curve is that whenever there is a technological change, they see that as an opportunity to get a jump on their competition. And they see this, combined with their Belt and Road Initiative, as a major opportunity to move out of the global banking system which the United States dominates. They have to do what they have to do. Their currency is not a global reserve currency. So, they have an opportunity here to take advantage. We, though, think about it in different terms, and that is, how do we make sure that our values are brought to bear in this new technology? Because this is coming. The question is, what role do we want to play in it, and are we determined to bring our values to bear or are we willing to live with the values of our economic competitors brought into this new round of things? Mr. McHenry. Thank you. Thanks for your testimony. I yield back. Chairman Lynch. The gentleman yields back. The Chair now recognizes the gentleman from Utah, Mr. McAdams, for 5 minutes. Mr. McAdams. Thank you, Mr. Chairman. Ms. Kelley, I am going to direct my first question to you. As you know, as Congress responded to the coronavirus pandemic, we faced a choice of moving quickly or responding perfectly, and I think we made the correct choice by responding quickly. And many of those programs have now been implemented or are underway, whether it is the Paycheck Protection Program or the economic stimulus payments, and many of your member companies have been involved in both of those programs and others. So my question is, taking a step back and thinking toward the next economic or other crisis and what we can do to prepare now for that crisis, what are some of the lessons that we have learned from our COVID response? How can we improve delivery of benefits to businesses and individuals moving forward, and what role can new technologies play in delivering those benefits? Ms. Kelley. Thank you for that question, Congressman. We applaud the actions of Congress in moving quickly to respond to the crisis. And we agree that the impetus to move quickly and the quick action was the right call. In terms of taking a step back and looking at lessons learned and where we are today, there are a few I think that we can draw already and others that we will clearly draw over time. First, I think there is a real need for government and industry to come together and identify exactly what it is we are trying to accomplish, whether it is getting dollars in people's hands quickly across a broad spectrum or otherwise, determine what is available and where there are gaps, and then look for existing tools to fill those gaps and particularly technology tools. There are so many fintech tools out there that can be deployed. As we were doing this in real time, obviously, that is difficult to do, but now that we have a moment to take a breath, I think it is the time to do it. I also just think we should leverage what we have. As we discussed, surveys of unbanked and lower- to middle-income Americans demonstrate that they actually prefer to spend using debit cards. Well, through this crisis, we have put those in people's hands. Some people already have them as part of their government benefits, but they now have them as part of this. We should be out there educating people on how they can use them, making sure they hang onto them, because now that they have them, if we need to act again, we can quickly do so, so, leveraging what we already have. And I just want to make one more point with respect to them that is important. We talked about the fraud that inevitably comes up when there is a crisis like this. That is true. That is an added benefit of these debit cards. They protect consumers from fraud. So if they are lost or they are stolen or they are scammed or a bad actor gets ahold of them, that provides protection to a population that really, really needs it, and that we provide. Mr. McAdams. So I guess to any of the other panelists, any lessons learned from this pandemic that might be applied to the future? Mr. Giancarlo. If I could make a suggestion, I think we do need to explore this new innovation. We need to start exploring the next level of technology side by side with the existing accounts-based technology if, for nothing else, to build greater redundancies in the system, but also greater optionality, and more tools in our toolbox to use in crises like this. Ms. Baradaran. And I think I want to underscore what Ms. Kelley said here. It is using the tools that we have very quickly, and I think this is one of the things--she is right. Most people, under $50,000, prefer to use debit cards. And so, how do we meet people where they are at, and make sure our solutions match the problem and is not something that we want on the other side? So what we want is a blockchain basis, and we can discuss that, but the problem here is the banking deserts. It is the unbanked and underbanked who--and we have the technology to meet those needs. And so, I think that is critical at this juncture. Mr. McAdams. Thank you. Mr. Chairman, I yield back. Chairman Lynch. Thank you, Mr. McAdams. The gentleman yields back. We will now go to the gentleman from Arkansas, Mr. Hill, for 5 minutes. Mr. Hill. Thank you, Mr. Chairman. I want to thank you for this terrific hearing. I want to thank Lisa and Clement for maintaining our technology for our committee, and I particularly want to thank Full Committee Chairwoman Waters and Ranking Member McHenry for recognizing back in the autumn of 2018 that a FinTech Task Force was essential for the United States to review its regulations, review its laws, review State laws, and make sure that we can be competitive globally as the financial services industry continues its migration from paper to analog to a fully digital distribution system. And, of course, as a Vandy graduate, it's always good to have a professor from Vanderbilt. ``Anchor Down,'' Professor Ricks, I'm glad to have you here. Mr. Ricks. I want to mention first this issue of underbanked, particularly in rural areas and the number of counties that now no longer have a physical banking location. I spent a good part of my career in community banking in a rural State, Arkansas, so I'm very familiar with this challenge. It is particularly bad in our large rural States in the western part of the country. Part of this is the way we regulate. The Herfindahl- Herschman Index, which governs bank mergers and forced divestitures, and the Fed's determination of who gets to buy banks, really have contributed to this. In other words, we have forced banks to divest of branches in small rural towns, even though their share of deposits isn't even a very accurate measure of banking concentration any longer. It is a very old idea and no longer relevant. And this hearing is an example of why it is not really relevant. Second, the Fed limits those branch sales mostly to other banks. And we have a lot of innovative credit unions, small credit unions, Community Development Financial Institutions (CDFIs) and other institutions that would love to serve customers in some of these rural environments, or somebody doing a partnership in that effort. So I think we need to think differently about rural banking particularly, and that is not to say there aren't urban challenges in this arena as well. Let me turn to this issue of the Fed also being the central public utility deliverer. Professor Ricks, great presentation, and, academically, I think it is elegant. I have seen this in other countries, this kind of thing, a postal bank as a centralized delivery for consumers. I worked in eastern Europe in the early 1990s after the Berlin Wall fell. Of course, those countries were trying to get away from the one-size-fits-all postal delivery system, but it doesn't take anything away from your idea. Representative Bill Foster and I have worked mightily on this digital dollar issue. And I would like to ask Mr. Giancarlo, you are really talking about a digital dollar, which Bill Foster and I have really supported the concept of since we have written the Fed and the IME about this, and you are creating that government digital dollar, but you are allowing other people to use it and set up payment rails. You are not proposing to centralize that digital dollar at a Fed-only distribution network. Is that right? Mr. Giancarlo. That is correct. So it would be-- Mr. Hill. Tell us a little bit more about that? Mr. Giancarlo. Yes. It would be distributed through the existing two-tier banking system. It would be created by the Federal Reserve, and distributed through commercial banks and other entrants that would be subject to an appropriate level of regulation against reserves that would be posted by banks to the Federal Reserve, in the same way the dollar is distributed now. And then the distribution ledger would be created, would be able to be written at the point of utilization. So, that could be at the bank use or perhaps even at the wallet use, but with the Anti-Money-Laundering/Know-Your-Customer (AML/KYC) provided, subject to appropriate standards. And it may be that it is provided by wallet providers, by existing financial solution providers or others. But it would be a widely distributed but not a totally decentralized system. It would be distributed through regulated actors in the marketplace. Mr. Hill. Thanks. I noted when David Marcus, who is the former CEO of Libra, testified several times last year, he said, ``We would use a digital dollar if it existed.'' Now, that may be sales talk to the Members of Congress on his part, but thank you, Mr. Lynch. And I yield back. Chairman Lynch. Thank you. The gentleman yields back. We will now recognize the gentleman from Ohio, Mr. Davidson, for 5 minutes. Mr. Davidson. Thank you. And I appreciate everyone for participating in this hearing. And the process is a little different. I echo the desire to do things live and in person, but at least we are live. So, thanks for the work that it has taken to get us to here, and at least we are using some form of technology here for the hearing. I would ask unanimous consent to submit for the record a letter that several of my colleagues, including Ranking Member Emmer, co-signed to the Secretary of the Treasury, asking for him and his staff to look for ways to integrate blockchain technology into our response to this public health crisis. Chairman Lynch. Without objection, it is so ordered. Mr. Davidson. Thank you. Many American companies are on the leading edge of blockchain technology. And I believe China's recent adoption of a fintech platform, along with the awareness that delivery of COVID-related payments could be improved, has generated renewed interest in the power and capabilities of blockchain, including moving payments securely, quickly, and transparently. I will also add that I have been proud to participate in events hosted by Women of Color in Blockchain, and Coinbase, organizations that have shown that blockchain is a force of financial and entrepreneurial inclusion and diversity that I think members of this committee should take seriously, particularly as we have put a lot of emphasis on underbanked and unbanked people. However, I am concerned that our laws or, more accurately, our lack of laws and lack of regulatory clarity within the digital asset space will hamper the innovation that needs to take place here in the United States, which is why I continue to stress the importance of a bill I have introduced called the Token Taxonomy Act. It is a bipartisan bill cosponsored by Democrats and Republicans, including many members of this committee. The bill would help regulators, industry, and consumers have certainty and clarity about when securities law would apply to distributed ledger-based projects. The bill has received supportive statements from organizations such as the U.S. Chamber of Commerce, the Blockchain Association, NASDAQ, IBM, and the Coin Center. We are here today, though, to discuss the government's role in adoption of financial technology to improve the delivery of payments to individuals. And I have joined several colleagues in the letter referenced. Mr. Giancarlo, you are a well-regarded subject matter expert in this space, and really moved the U.S.'s role far down the road in your previous role at the CFTC. You have clearly taken an interest in the whole space, not just in the central bank digital currency (CBDC). As you look at it, what drives the need for a central bank digital currency versus other types of digital tokens such as stablecoins, cryptocurrencies or other existing tokens in the space? Mr. Giancarlo. Please don't perceive any of my advocacy for development of a U.S. central bank digital currency to be a call for any suppression of, or moving away from, these other efforts. I think in our free market system, America has always innovated, with a lot of innovation going on simultaneously, and it is for the marketplace to determine which of those new innovations are appropriate and receive the public's patronage. And so, I think we have benefited to some degree from the launch or the work of Libra to see inefficiencies in our own system, and yet at the same time, I view a U.S. central bank digital currency as a fundamental element of the economy. Our economy is built upon the dollar. If we don't modernize the dollar for modern times, then it will be like our airports and our public transportation systems; it will become increasingly out of date. All of the economic activity that is built upon the dollar relies on the dollar to modernize. And as we watch these other innovations going on, we see the creativity around them, the exploration they are doing. We need to take some of that and apply it to our dollar itself so that it stands the test of time. Mr. Davidson. I think that was well-said. I have likened some of our approach in this space to the Sears Roebuck approach to retail, and we certainly don't want to replicate that effort. My time is rapidly fading away, but briefly, when you think about all of the use cases, so much in the blockchain technology is focused on payment systems and currency. In fact, so much of the language refers to it as, ``cryptocurrency.'' Could you maybe highlight the importance of blockchain beyond just payment systems and technology, and the opportunity we have if we had regulatory clarity. Mr. Giancarlo. I had the honor to serve at the U.S. Commodity Futures Trading Commission, which oversees some of the world's largest markets for hedging and some of the world's most important commodities and contracts, whether they be agricultural commodities like soybeans and cotton, whether they be mineral commodities, whether they be energy products or some of the world's most important contracts, hedging instruments. All of them are priced in dollars. That is an enormous advantage to the United States. It is one of the many underpinnings of the dollar supremacy, that the world hedges its exposure to all of those commodities in dollar markets. All of these commodities are moving to a digital format. They are going to go onto distributed ledger. They are going to become tokenized. They are going to become programmable. How long can the dollar remain a world reserve currency if it does not also become digitized, programmable, so that those instruments can be converted into this new digital format? This is a sea change. This is a new wave of the internet that is coming over us. It is going to have profound ramifications, and we need to innovative alongside of it. We can't stand still. Mr. Davidson. Thank you so much. My time has expired, and I yield back. Chairman Lynch. Thank you. The gentleman yields back. We will now go to Mr. Steil of Wisconsin for 5 minutes. Mr. Steil. Thank you very much, Chairman Lynch. I appreciate you holding today's hearing. I, too, look forward to being back and in person for future hearings in Washington. I think we are diving into a terrific question, which is, how do we get more people banked? How do we increase our inclusion in the financial services space? And as I am reading a lot about the potential in particular on the FedAccounts, I think it is a bit of an incomplete solution. So, what I would love to do if I can, Mr. Chris Giancarlo, is ask you a question about, where else can we look inside these regulatory burdens that we place on traditional depository institutions that, if reformed and if we make the adjustments, would actually, just using our current system, really create access for the unbanked to join the current financial services system? Mr. Giancarlo. Please don't read anything into what I am saying to be pouring cold water on the need to modernize our banking system, to further financial inclusion, to bring participants who should have bank access into that. We need to do that. And I think some of my fellow panelists have explored some very good ideas on this, and their expertise on this is greater than mine. My background is as a market regulator, not a banking regulator. But I also believe that this new CBDC technology provides a way to both move into the future, to--the great Wayne Gretzky says he was successful because he skated to where the puck is going. This is where the puck is going. We need to skate to where the puck is going. But that doesn't mean we should not still take steps to further financial inclusion. Issues of banking deserts are really important issues. So we do need to take steps, and there are some very good ideas out there. I wish my expertise was deeper in this to give you specific suggestions, but we have a great panel who can. Mr. Steil. I appreciate it. I just think it is important to reiterate that inside this discussion of what I think is a bit of an incomplete solution on the Federal accounts, is to make sure that we don't take our eye off the ball, on the importance of reviewing what is a heavily regulated sector of our economy. And removing some of these unnecessary barriers, I think will actually have a positive impact on individuals who have been historically underserved and those who are deserving and in need of bank access. Let me shift gears for you, Mr. Giancarlo, if I can, and come back to you again. And in particular, as we look, China has begun experimenting with digital currencies, and it has been commented on, could you just continue that discussion about the potential implications of a Chinese digital currency? Because I think what we need to be aware of is, as you said, go where the puck is going for the great Wayne Gretzky. But what is China doing today? What should the United States be doing? And as China is moving forward, what are the implications for the U.S. as a world reserve currency, U.S. sanctions enforcement, consumer privacy in trade? If you could just comment, obviously briefly, here. Mr. Giancarlo. To explore that, perhaps I could just paint a picture of, say, a few years from now in East Africa there is a city of, say, 4 million people and it has one water purification plant built by China under its Belt and Road Initiative. It will use 5G technology and sensors built in that plant to indicate when the plant is running low in chlorine, for example. It will send a 5G message back to a Chinese supplier that will supply that chlorine. But here is the important thing: It will be paid for in digital RMB directly to the Chinese supplier. It will totally bypass the global banking system, which we in the United States have dominated, but which is also the basis of sanctions power. Sanctions power is a way of dunning bank activity. So China is building this very thoughtfully, but they will, within their Belt and Road Initiative, be outside of a banking system. Now, China has its reasons for doing what it has to do, but do we sit still or do we also explore this technology and bring to it the values that we have brought to the space program, that we have brought to the internet: values of privacy; values of government with respecting the rights of individuals and not seeing it as a means of surveillance; the rule of law; et cetera, et cetera. That is why we can't sit still. This is going to be a very powerful new technology. We have used that in the past. We need to use it in the future to be a leader in that new technology. Mr. Steil. Thank you very much. I couldn't agree more that we need to be forward-thinking, and forward-looking to make sure that we remain globally competitive, in particular against the Chinese, who are moving aggressively in the financial services space. I appreciate your time, and everyone's time here today. And I yield back. Thank you. Chairman Lynch. The gentleman yields back. I am now happy to recognize the full committee Chair, the gentlelady from California, who has been the leading advocate for inclusive banking and using FedAccounts to accomplish that purpose, Chairwoman Waters. Chairwoman Waters. Thank you so very much, Chairman Lynch. I certainly appreciate your leadership. I appreciate this hearing we are having today, but I appreciate more than anything the fact that you have been in the leadership of dealing with the problem that so many of us have been concerned about for so long, and that is, what are we going to do about the unbanked? People in America continue to lack access to basic banking services, which has slowed the delivery of stimulus payments from the CARES Act. In fact, nearly 35 million people have received paper checks, not direct deposits to their bank account. However, I am concerned that the people who most likely need stimulus payments may not even be able to deposit a paper check. Some reasons that folks say they are unbanked include: distrust of banks; not having enough money to maintain a bank account; and a lack of accessibility to a branch bank. Fintech companies are stepping into the unbanked space by marketing digital wallets as low-barrier alternatives to bank accounts for U.S. consumers. And so to Professor Ricks, you have penned a proposal to use FedAccounts to quickly deliver stimulus payments to all individuals in a crisis. I agree with you, and I have drafted a bill that I would like to have your comments on, a bill that would use this delivery mechanism to require the Fed to provide $2,000 in monthly payments for adults, and $1,000 for every child, until the pandemic ends. Would you briefly describe how this proposal could help bank the unbanked and be a more efficient and equitable way to deliver stimulus payments? How does this proposal compare to what fintech companies are doing to provide financial services to unbanked households? And if you have been through this before I joined the hearing today, please just say so. Mr. Ricks. Thank you so much, Chairwoman Waters. Just by way of context, Congress had hearings in the late 1980s on the problem of the unbanked, and here we are more than 3 decades later still facing the same issues. The Federal Reserve Board gave testimony at that hearing in 1989 and said, ``Don't worry, private sector innovation is going to solve this problem.'' And here we are 30 years later, talking about the same problem. So we should applaud and celebrate private sector innovation and technology developments, but it shouldn't be an excuse for public policy stasis. When the Fed was created, at the time it was created, before it was created bank notes themselves, paper money was issued by the private banking system. We created the Fed and it took on that role. And most of us think that was a good idea, that the Fed should be in the business of offering physical paper currency to the general public as a resource. The question is whether we should do that now that we are in the 21st Century. The same thing for digital money, and that is what FedAccounts are. It is a form of digital money on the books of the Fed. And this could be offered. It is an attractive, and compelling way to deal with the problem of the unbanked, which, as you know very well through your leadership, Chairwoman Waters, has been on the public policy agenda for decade after decade, and we still face the same problem and talk about it again and again. At some point, direct public provisioning needs to be part of the conversation. Other countries have 99 percent bank account penetration. Here we do not, and we need to figure out actual public policy solutions. Chairwoman Waters. Thank you so very much. I appreciate it. And I yield back the balance of my time. Chairman Lynch. The gentlelady yields back. I would now like to recognize the gentlelady from Michigan, Ms. Tlaib, for 5 minutes. Ms. Tlaib. Thank you so much to Chairwoman Waters, and thank you so much to Chairman Lynch for this hearing. I also want to thank your leadership in making sure that everyone stays safe during this pandemic, including our witnesses who don't have to travel all the way down to Washington, D.C., and risk their lives. So I appreciate that and that we are putting public health first. As you all know, I represent the third-poorest congressional district in the country, so this is a really critical issue to my neighbors. And we got hit really, really hard, not only public health-wise with COVID, but also the economic instability that was created because so many of my residents were already in survivor mode before the pandemic. I know, as you all have already testified, that many of our folks don't really understand what options are out there, but even more significantly, they don't have access to broadband. So a lot of them don't really truly understand the alternative opportunities out there. And, as many of you know, I introduced the Automatic BOOST to Communities Act (ABC Act), which would only use/deliver cash assistance through preloaded debit cards, but would also use the data and that infrastructure as a way to build out FedAccounts, postal banking, and digital accounts and eCashing systems. Professor Baradaran, in your research you wrote about the need for postal banks and how that could provide services to unbanked and underbanked communities, and my community as well, in rural areas. Could you talk to us about that? Ms. Baradaran. Sure. So if we are going to talk about what people are doing abroad, every single country practically, China, India, all of Europe and the United States from 1910 until 1966. Postal banks are a natural ally to the Federal Reserve central bank banking system, and the reason is because they have the footprint in every community, regardless of cost, because that is the mission of the Post Office. It is a very democratic institution. And so by linking up the payment system, this is not a technology problem. The payment system is already there. Linking up the payment system to the Post Office so people can go, take out cash and use that money. And if we want to move toward any of these policies, then we need that one crucial step of that cash-digital divide, and that is what postal banks do. It is what they have done here. It is what they do abroad. So if we want to follow other countries' lead, we could, but we also are leaders. Our Federal Reserve is probably the best payment system in the world. It is the most trusted. It is the most secure. And so, we can just make it a little bit better. We don't need to follow in this. We can lead. Ms. Tlaib. Thank you so much. I would love for you to take a look at the ABC Act. Ms. Kelley, it took the IRS about 10 weeks to start distributing the 2008 stimulus payments after enactment. By contrast, the IRS delivered the first round of the CARES payments 15 days after the enactment, mostly via direct deposit, as you probably know, though some have still not received their payments yet. I know many of my colleagues on the call, probably get calls still. Not only that, mix-ups where there is a married couple who only get the $1,200; they don't get the payment for the spouse. So, it is just disastrous. Would the technology described in the Automatic BOOST to Communities Act, with the preloaded debit cards, with eCash, eWallets, postal bank and FedAccounts, be able to kind of address the issue around some of these implementation problems you see now with paper checks? Ms. Kelley. Thank you very much. We agree completely that paper checks are not the way to go, for reasons that we have discussed, for every reason, the expense associated with them, the length of time it takes to get them. That is the wrong way to go. I think there are lots of interesting proposals out there. As we discussed, I think they are worthy of conversation and study. And I think, as everyone agrees, we all should be forward-looking and looking to see how we can use technology, harness technology to deliver more effectively to those who need it most. As we sit here today, as we talk about the stimulus that needs to be delivered today, however, what is clear is that we are going to have to harness the infrastructure that is there today and that is actually working. Prepaid cards, as you referenced, actually work well and consumers like them, so getting them in the hands of those consumers. There is no broadband issue with a prepaid card. That is something that we can deploy now, and we are, that works well and can be transitioned, candidly, to the technology, including P2P mobile wallets. You can load your prepaid card onto them as we evolve. We can harness those technologies as well. And I just want to make the point that those also work well in rural areas, in some of the areas that we talked about, because not only is fintech stepping in, but it is leveraging the existing infrastructure in terms of independent ATMs, which are prevalent in those areas, but also big box stores, and other grocery stores, which are also now participating in the system, helping consumers get cash onto these technologies or get cash off where they need it. Ms. Tlaib. Thank you so much. I yield back, Mr. Chairman. Chairman Lynch. The gentlewoman yields back. And that concludes our questioning, I believe. If any Member is out there and I have not called upon them, let me know. But I would like to take this opportunity to thank all of our witnesses for their thoughtful and enlightening testimony. Without objection, the following letters have also been entered into the record and will be admitted after today's hearing: the American Bankers Association, eCurrency, Cardtronics, the Credit Union National Association, the Innovative Payments Association, and Professor Tony Yezer of George Washington University. The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. This hearing is now adjourned. Thank you. Be safe. [Whereupon, at 1:34 p.m., the hearing was adjourned] A P P E N D I X June 11, 2020 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]