The US House of Representatives approved a bill that prevents the US Federal Reserve from developing a digital dollar, a type of central bank digital currency (CBDC) that has been under consideration for several years.
The bill garnered bipartisan support, with 216 in favor and 192 against, and was backed by a majority of Republican members and three Democrats. It is now on its way to the US Senate for a vote and, if successful, will be sent to President Joe Biden for his signature, effectively becoming law.
Key Takeaways
- Bipartisan Support: The House passed the CBDC Anti-Surveillance State Act with a 216-192 vote, showing bipartisan support, including backing from three Democrats. The bill aims to prevent the Federal Reserve from developing a digital dollar without congressional approval.
- Symbolic Move: The bill is mostly symbolic since the Federal Reserve has not proposed issuing a CBDC and has stated it would only proceed with congressional approval. However, it reflects concerns about potential government overreach and financial surveillance.
- Legislative Uncertainty: The bill’s fate in the Senate, under Democratic control, is shrouded in uncertainty. However, if it does secure passage and the President’s signature, it would curtail federal oversight of cryptocurrencies and foster a more decentralized digital currency landscape. This potential outcome could significantly impact the financial and economic policy.
- Divergent Views: Supporters, including House Majority Whip Thomas Emmer and Chairman Patrick McHenry, emphasize privacy and free market principles. Opponents, like Congresswoman Maxine Waters, argue it could hinder competitiveness and innovation in the global digital currency race.
House Passes CBDC Anti-Surveillance State Act with Bipartisan Support
The House of Representatives passed bipartisan legislation that would prevent the Federal Reserve from establishing its own central bank digital currency (CBDC) unless it receives explicit authorization from Congress. The CBDC Anti-Surveillance State Act was approved in the chamber by a vote of 216 (in favor) —192 (against), mostly along partisan lines.
The action is largely symbolic since the Federal Reserve has not proposed plans to issue a CBDC and has consistently stated that it would only proceed with congressional approval. Nevertheless, Republicans, including former President Trump, have expressed worries about the government’s potential misuse of a CBDC. Three Democrats—Mary Peltola (Alaska), Jared Golden (Maine), and Marie Gluesenkamp Perez (Washington)—joined all Republican members in supporting the bill.
The bill, known as the CBDC Anti-Surveillance State Act, was spearheaded by House Majority Whip Thomas Earl Emmer Jr. (R-Minn) and supported by Republican House Financial Services Committee members. The process before it becomes law is still lengthy. The Senate must pass it and may face a potential presidential veto. Still, if it does, it will significantly limit the federal government’s ability to regulate cryptocurrencies, potentially leading to a more decentralized and market-driven digital currency landscape. However, it remains uncertain whether the bill will be considered in the Senate, which Democrats control.
Emmer stated that for over two years, efforts have been focused on informing, building support, and passing this critical legislation, prohibiting unelected officials from introducing a financial surveillance tool that could significantly weaken American values.
He emphasized that his legislation guarantees that digital currency policy in the United States is determined by the American public, ensuring that any development in digital money upholds their values of privacy, individual sovereignty, and free market competitiveness. He believes these principles are essential for the future global digital economy.
Chairman Patrick McHenry (R-N.C.) stated that any issuance of a Central Bank Digital Currency (CBDC) would require authorization from Congress to ensure it aligns with American values. He emphasized that a CBDC should be open, private, and permissionless; otherwise, it risks resembling a surveillance tool similar to those used by the Chinese Communist Party (CCP).
McHenry also mentioned in a press release that the CCP utilizes a CBDC to monitor the spending habits of its citizens, using this data to support a social credit system that either rewards or penalizes individuals based on their actions. He argued that this kind of financial surveillance is inappropriate for the United States.
Congresswoman Maxine Waters (D-Calif.), the ranking Democrat, criticized the bill during a House floor speech and in a press release. She argued that the bill would hinder competitiveness and innovation internationally and weaken the federal agency essential to controlling inflation.
Waters further noted that the bill would position the US as the first nation to prohibit a CBDC despite 134 countries and currency unions currently exploring or implementing such digital currencies. She pointed out that China is already advancing in this area, likening the competition in CBDC development to a space race.
TD Cowen, an investment bank, has noted that the House’s bill opposing a Central Bank Digital Currency (CBDC) could have broader implications.
The bank considers such a prohibition to be detrimental to the international dominance of US banks and the global influence of the U.S. dollar. This concern arises because the ban would affect both wholesale and consumer use of CBDCs, potentially giving digital currencies like the Euro an advantage in global trade. This advantage would occur as stablecoin digital dollars could depreciate during a redemption run, whereas a digital Euro would likely not face similar risks, providing our audience with a clear understanding of the potential outcomes.
What Is the Fed’s View?
The Federal Reserve has clearly stated it is “nowhere near” making a recommendation or adopting a CBDC. Federal Reserve Chair Jerome Powell has communicated to lawmakers that any adoption of a CBDC would involve the banking system.
In March, Powell stated that the Federal Reserve does not wish to create individual accounts for Americans. He emphasized that currently, only banks hold accounts at the Federal Reserve, and this arrangement will remain unchanged.
Although the Federal Reserve has considered the potential for issuing a CBDC and released a report analyzing its advantages and disadvantages last year, central bank officials have generally been dismissive of the idea. Furthermore, Powell has declared that the Federal Reserve would only issue a CBDC with the approval of Congress.
Conclusion
The House’s approval of the bill, which bars the Federal Reserve from developing a central bank digital currency (CBDC), is a pivotal moment in the continuous discourse on digital currency regulation. While its impact is largely symbolic given the Federal Reserve’s current stance on CBDCs, the bill underscores the concerns about potential government overreach and financial surveillance, issues of paramount importance.
The bill’s bipartisan endorsement is a testament to the shared priority placed on privacy and individual sovereignty in financial matters. As the legislation progresses to the Senate, its future remains to be determined, particularly under a Democrat-controlled chamber. If it does pass, it will shape the trajectory of digital currency development in the US, favoring a decentralized and market-driven approach over federal control.
