Could digital currency and crypto be the answer to America’s 14 million unbanked adults?

With digital and cryptocurrency still in their relative infancy, the potential to disrupt traditional banking norms is still unclear.

Elizabeth Warren believes that digital currency has the potential to bypass the big banks and reach Americans who are unbanked or underbanked — estimated to be some 14 million people. A digital currency has no physical notes or coins and is stored in a digital wallet.

In a discussion on how to regulate the digital and cryptocurrency market while still allowing it the freedom to grow and innovate, the Massachusetts senator noted that there has been an “enormous failure” by the big banks to reach out to these consumers.

Ms Warren told CNBC’s Squawk Box on Wednesday that people are paying way too much just to be able to have their paychecks cashed or to pay their utility bills and their rent because they don’t have a standard checking account.

“Digital currency, and a central bank digital currency, may be an answer there because the costs are extraordinarily low for being able to transact,” she told Andrew Sorkin. “And maybe that will be a way going forward that we get more people into the system.”

In May 2021, Federal Reserve Chair Jerome Powell announced plans to publish a discussion paper on the potential for issuing a US central bank digital currency, under the belief that it could complement the use of cash and bank deposits rather than replacing them.

A digital currency backed by a central bank has three key advantages — it promotes social inclusion, as per Ms Warren’s point; it simplifies cross-border transactions; and it helps combat illegal activity.

Senator Warren was also asked about how the burgeoning field of cryptocurrency, the encrypted form of digital currency, might specifically be regulated, given that the industry is still at the startup phase.

Mr Sorkin made a comparison with the question as to whether the internet should have been better regulated in the 1990s.

Ms Warren responded that another way to look at the question was to compare it to when the government stepped in and regulated drugs.

She explained that while people could sell “snake oil” there wasn’t much interest in investing in developing good, safe drugs — once regulated by bodies such as the FDA, there was much more investment for the benefit of everyone.

“I don’t want to wait until a whole lot of people, a whole lot of small investors, a whole lot of small traders have been completely wiped out,” the senator said, adding that the industry needs “rules of the road” and a “cop on the beat” to give people confidence and stop bad actors pushing fraudulent schemes on people.

Ms Warren added that without rules and regulations it is the big players in the market that can take advantage of the small players — they have the advantage of there being no rules.

“I want people to have the freedom to invest. I just don’t want a system where the big guys were the shadowy guys … can defraud people.”

The senator also took the opportunity to once again push for a tax on the wealth of the richest Americans — specifically mentioning Amazon founder and recent astronaut Jeff Bezos.

“I want to see us tax wealth, however, your wealth is tied up. It shouldn’t make a difference whether you have real estate, or whether you have cash, or whether you have a bazillion shares of Amazon. Yes, Jeff Bezos, I’m looking at you,” said Ms Warren.

“Whatever form you have your assets — diamonds, yachts, paintings — I think there ought to be a tax on that annually,” she added.