The U.S. House of Representatives voted on Thursday, May 23 to bar the Federal Reserve from issuing a central bank digital currency (CBDC) unless it has explicit authorization from Congress. Almost along partisan lines, the CBDC Anti-Surveillance State Act, or HR 5403, passed the chamber by a 216-192 vote with 213 Republicans voting in favor and three Democrats crossing the party lines to support the bill. No GOP members while 192 Dems voted in opposition.
A CBDC is a digital version of a currency issued by a central bank. In the U.S., this would entail the Fed issuing a digital dollar that could be used the same way as a regular dollar.
House Majority Whip Tom Emmer (R-MN), who introduced the legislation in September 2023, argued that a digital dollar would allow the federal government to surveil Americans’ transactions and choke out politically unpopular activity. "For more than two years, we have worked to educate, grow support, and pass this important legislation, which prevents unelected bureaucrats from issuing a financial surveillance tool to fundamentally undermine our American values," Emmer said in a statement on X, formerly Twitter.
Emmer's views are basically the same as former President Donald Trump's, who has vowed to block the creation of a CBDC if he becomes reelected as president in the 2024 elections. "As your president, I will never allow the creation of a central bank digital currency," Trump, who is now the frontrunner GOP nominee, said at a rally in New Hampshire in January. "Such a currency would give a federal government, our federal government, the absolute control over your money. They could take your money. You wouldn’t even know it was gone. This would be a dangerous threat to freedom."
Speaking on the House floor Thursday, Republican Patrick McHenry defended the anti-CBDC bill. "If not open, permissionless and private, a central bank digital currency is no more than a CCP-style surveillance tool waiting to be weaponized," he said. "We've previously seen examples of governments and governments around the world weaponizing the financial system against their citizens."
The bad news, according to Politico, is that the Democrat-controlled Senate is unlikely to vote on it.
Meanwhile, the anti-crypto camp, spearheaded by long-term industry skeptic Joe Biden, has been capitalizing on how CBDCs can make digital transactions faster and cheaper and come with the government's imprimatur, unlike cryptocurrencies.
Maxine Waters, a Democrat from California, said banning CBDCs would threaten the dollar's dominance in international markets, and urged her colleagues to reject the bill. "Compared to other digital assets, CBDCs have a greater potential to maintain a stable value, garner public trust and become a viable means of payment transactions," she said. "A United States CBDC would be designed to protect consumer privacy and other deeply held American values." She also claimed that there is nothing inherent about a CBDC that would compromise privacy and that the bill is an "attempt to stifle U.S. innovation and competitiveness abroad and to undermine the federal agency that is the most critical to fighting inflation."
According to the think tank Atlantic Council, three countries have already launched CBDCs: Nigeria, Jamaica and the Bahamas. Another 36 countries are currently piloting their CBDCs.
Fed is "nowhere near" adopting CBDC
Despite some push from the Democratic party to adopt a CBDC in place of the physical currency, the Federal Reserve has insisted that it was "nowhere near" recommending or even adopting a CBDC. Fed Chair Jerome Powell has told lawmakers that if the central bank were to adopt a CBDC, it would be done through the banking system.
"The last thing we would want – we, the Federal Reserve, would want – would be to have individual accounts for all Americans or any Americans for that matter," Powell said in March. "Only banks have accounts at the Fed and that's the way we're going to keep it."
According to reports, contrary to its statements, the Fed has been toying with the idea of issuing a CBDC. In fact, last year, it issued a report examining the pros and cons of a CBDC, but central bank officials have thrown cold water on the idea in the past. Powell has also said the Fed won't issue a CBDC without congressional approval.
The Heritage Foundation, a conservative organization, placed pressure on lawmakers to pass a CBDC bill and, in February, urged them to cosponsor it, warning that if they don't, their score on the Heritage Action Scorecard "will be negatively impacted."
Investment bank TD Cowen insisted that the House's anti-CBDC bill could have broader implications. "We view such a ban as negative for the global dominance of U.S. banks and the global role of the U.S. dollar," it said. "This is because the ban would apply to wholesale as well as consumer use. That could give the Euro or other currencies that are digitalized an edge in being used for global trade as stable coin digital dollars could lose value if there is a redemption run while a digital Euro would not face that threat."
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