A congressional hearing on digital currencies rarely makes headlines. Yet, this week’s debate over stablecoins and central bank digital currencies (CBDCs) revealed more than technical disagreements; it exposed deeper anxiety about financial power, privacy, and control in an increasingly digital world.
The conversation unfolded along predictable lines. Those skeptical of CBDCs warned of creeping surveillance and government overreach. Advocates, meanwhile, framed it as a necessity, a matter of American competitiveness in a world where China and Europe are already moving ahead. Yet what emerged, almost inadvertently, was a realization that the supposedly safer alternative, privately issued stablecoins, carries many of the same risks.
While CBDC opponents championed stablecoins as the free-market alternative, testimony from industry leaders revealed that stablecoins — despite their branding as decentralized, private-sector solutions — already carry many of the same risks. The ability to freeze assets, enforce government mandates, and track transactions is a present reality, especially when combined with Know Your Customer (KYC) laws which eradicate privacy.
The core argument against CBDCs is simple: they give the federal government unprecedented control over personal finances. Randall Guynn, Chairman of the Financial Institutions Group at Davis Polk & Wardwell, issued a stark warning.
“A CBDC would give the Federal Reserve staff a direct window into virtually every transaction every person in America makes,” he said. “And at least one of them won’t be able to resist the temptation to use that information to promote what they consider to be worthy political goals.”
His comments echoed a broader concern: a US CBDC could function as a financial surveillance tool, much like China’s digital yuan. In China, authorities can track purchases in real-time and even restrict how certain funds are spent. Many fear the US government could use a CBDC to implement similar controls — whether to enforce political objectives, regulate behavior, or even deplatform individuals from the financial system.
Representative Stephen Lynch dismissed the opposition as misguided. “As every major economy races ahead of the US in developing a central bank digital currency, discussions in the US have been obscured by disinformation and political ideology,” he argued. For Lynch and other proponents, maintaining dollar dominance requires keeping pace with China and Europe, even if it means sacrificing financial privacy.
But the strongest objections to CBDCs came not from those who wanted to stop digital currencies altogether, but from those who favored an alternative: stablecoins.
Many CBDC critics held up stablecoins—privately issued, dollar-pegged digital currencies—as a market-driven solution that preserves financial freedom. Unlike a CBDC, which would be controlled by the Federal Reserve, stablecoins are issued by private companies. In theory, this should mean less government oversight and greater privacy.
But testimony from industry leaders shattered that illusion.
Charles Cascarilla, CEO of Paxos, a major stablecoin issuer, acknowledged that his company already has the ability to freeze user funds and comply with government directives.
“As the issuer of various regulated stablecoins, about five of them right now, we have the ability as the issuer, because we control the smart contract… we are able to decide if an address should be frozen or if funds should be seized,” he admitted.
The very same tools that many fear a CBDC might introduce—transaction monitoring, asset freezing, and account blacklisting—are already embedded in stablecoins. The difference? Instead of the Federal Reserve having control, it’s private corporations.
The hearing also revealed that stablecoins are subject to strict regulatory compliance. Caroline Butler, Global Head of Digital Assets at BNY Mellon, confirmed that stablecoin issuers apply the same KYC and Anti-Money Laundering (AML) requirements as banks. “We apply AML, BSA, and KYC practices,” she stated.
For much of the hearing, stablecoins were framed as the answer to CBDC concerns. But by the end, it was clear that the real debate is not about government-controlled money versus private digital currencies—it’s about control itself.
Whether issued by the government or by a corporation, digital currencies already have mechanisms in place that allow for oversight, restriction, and enforcement. The distinction between a CBDC and a stablecoin is largely a matter of who holds the reins.
CBDCs remain a looming threat, a tool that could easily be weaponized for political or ideological purposes. But the idea that stablecoins offer a free-market escape hatch is, at best, an illusion, if governments can mandate private companies to monitor or suspend users or transactions.
