A House Republican on January 12, 2022, announced legislation barring the Federal Reserve from issuing a central bank digital currency (CBDC) to individual users. The introduction of Rep. Tom Emmer’s so-far untitled bill comes a day after a Senate Banking Committee hearing in which Sen. Pat Toomey of Pennsylvania, the panel’s ranking Republican, questioned Fed Chair Jerome Powell on the prospect of the Fed acting as a retail banker for a digital dollar.
China and other governments around the world are moving forward on CBDCs, in which currency issued by a central bank is represented by a digital token or other form of electronic record. The idea, however, has yet to take off in the U.S., and is coming under increasing scrutiny from Republican lawmakers and the banking lobby.
The Fed is planning to issue its delayed report on CBDCs “in the coming weeks,” Powell said during his January 11 banking panel nomination hearing, answering a question from Sen. Mike Crapo, an Idaho Republican.
“By the way, it’s more going to be an exercise in asking questions and seeking input from the public rather than taking a lot of positions on various issues, although we do take some positions,” Powell said.
Later in the hearing, Toomey pressed Powell on the proposition that a CBDC would be developed in such a way that Americans would have retail accounts with the Fed, and the Fed would serve as a retail banker.
“It seems to me that here is absolutely nothing in the history, the experience, the expertise, the capabilities of the Fed that lend the Fed to being a retail bank,” Toomey said. “Is that a fair observation?”
Powell replied: “I would say it is, yes.”
Toomey further asked Powell whether a Fed-issued digital dollar – should Congress authorize it – would preclude “well-regulated privately issued stablecoins” from existing alongside it. “No, not at all,” Powell replied.
The growing market for stablecoins, digital currencies whose value is pegged to the U.S. dollar or other stable asset, are the subject of increasing attention from regulators and Democratic lawmakers, while Republicans have largely rallied around preventing a regulatory crackdown on the assets, particularly from the SEC. Toomey’s comments reflect broader Republican unease around how the introduction of a CBDC could disrupt the stablecoin landscape. (See House Republicans: Central Bank Digital Currency Shouldn’t Impede Stablecoins in the November 18, 2021, edition of Accounting & Compliance Alert.)
On the House side, Emmer’s bill would explicitly spell out that a Federal Reserve Bank “may not offer products or services directly to an individual, maintain an account on behalf of an individual, or issue a central bank digital currency directly to an individual.”
“As other countries, like China, develop CBDCs that fundamentally omit the benefits and protections of cash, it is more important than ever to ensure the United States’ digital currency policy protects financial privacy, maintains the dollar’s dominance, and cultivates innovation,” Emmer said in a statement. “CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely.”
Emmer, from Minnesota, added that “not only would this CBDC model centralize Americans’ financial information, leaving it vulnerable to attack, but it could also be used as a surveillance tool that Americans should never tolerate from their own government.”
This article originally appeared in the January 14, 2022 edition of Accounting & Compliance Alert, available on Checkpoint.
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