CONTRIBUTOR
Contributing Writer,
Techstrong Group

The controversy surrounding the possibility of the Federal Reserve issuing its own digital currency continues to roil as a vocal opponent of the idea in Congress this week refiled legislation aimed at blocking a possibility that an official from the central bank said last week is a long way off from being decided.

Rep. Tom Emmer (R-MN), the majority whip in the House of Representatives, on September 12 refiled the bill that has broad support among Republican legislators – it has 50 co-sponsors, including members of the House Financial Services Committee – and from conservative organizations like Heritage Action for America and Club for Growth.

Emmer, who initially filed the bill earlier last year, said in a statement that any push to introduce a central bank digital currency (CBDC) would endanger citizens’ financial privacy by giving the federal government the ability to track transactions and use what it finds to attack political opposition.

“That’s why I’m reintroducing my landmark legislation to put a check on unelected bureaucrats and ensure the United States’ digital currency policy upholds our values of privacy, individual sovereignty, and free-market competitiveness,” Emmer said in a statement. “If not designed to be open, permissionless, and private – emulating cash – a government-issued CBDC is nothing more than a CCP-style surveillance tool that would be used to undermine the American way of life.” 

The bill would amend the Federal Reserve Act to prohibit the central bank from issuing CBDCs or using them to create monetary policy.

Fed Speaks, House Whip Acts

Emmer reintroduced it less than a week after Michael Barr, vice chair for supervision at the Fed, said during a financial tech event that the Fed was continuing to investigate the idea of a digital dollar as part of a larger effort to keep the central bank up to date with the latest currency and payment technologies.

The Fed has been researching CBDCs for at least two years, with Fed Chair Jerome Powell saying last year that an official digital dollar could help keep it as the dominant currency at a time when other countries are issuing their own CBDCs. According to the Atlantic Council think tank, 131 countries have either launched CBDCs, are running pilot programs, or are researching the issue.

The United States is listed as a country with a digital currency under development. CBDCs essentially are the digital form of a country’s physical currency, and countries are increasingly taking interest in them in a world where fewer people use cash and banks and other financial institutions do more business with digital currencies.

“As the pace of innovation increases, the payments landscape continues to evolve with the emergence of new programmable payments platforms, including those built on distributed ledger technology and blockchain technology, and new forms of digital assets, such as cryptocurrencies, stablecoins, and central bank digital currencies,” Barr said.

He added that the Fed is seeing “increased interest in and experimentation with these innovative technologies” in both the private and public sectors within the United States and in other countries. Barr added that the Fed needs to understand the technologies and tradeoffs that a CBDC would mean to ensure it could continue to support safe and efficient payment systems in the coming years.

No Decision Anytime Soon

That said, despite the amount of research the Fed is doing – including talking with various players in the space and researching the system architecture needed to support a digital currency – the Fed is nowhere near making a decision, he said.

“The Federal Reserve has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress,” Barr said. “Given the importance of this infrastructure, investigating the potential opportunities, risks, and tradeoffs for payments innovation is just one way the Fed fulfills its role in supporting the responsible innovation that enables a safe and efficient U.S. payments system.”

Part of the research into a system architecture is understanding the ledgers that record who owns the digital assets and how the transactions are kept, secured and verified. It also includes looking into tokenization models, “the design of the digital analog to the paper bank note that permits a transfer of value between two parties without direct facilitation by the issuing central bank,” he said.

Monica Eaton, founder and CEO of Chargebacks911, said in statement this week that collaboration with the private sector and domain experts will be important as the Fed continues exploring the idea of a CBDC.

“Striking a balance between regulation, innovation, and consumer protection is a complex task that requires careful consideration and stakeholder engagement,” Eaton said. “Finding this equilibrium will be essential for the successful adoption and implementation of CBDCs to positively impact the economy, promote financial inclusion and benefit individuals and businesses.”

The issue, according to Emmer and other critics, is that while decentralized digital currencies like Bitcoin are not issued or controlled by governments, CBDCs are, raising questions about governments’ intrusions into private financial transactions.

“Thorough anti-CBDC legislation is critical for safeguarding Americans’ financial privacy in the face of potential surveillance, control, and political intimidation,” said Ryan Walker, Heritage Action’s acting executive director.

Even though the United States may be worried about the U.S. dollar’s dominance in global finance squeezed by China, which is running a CBDC pilot project, it’s important that the United States doesn’t follow China’s lead, according to Club for Growth President David McIntosh, adding that China issues its digital assets and “surveils, spies, monitors, and restricts consumer behavior.”

Polls: Consumers are Unsure

Recent polling indicates that U.S. consumers are skeptical about the government issuing a digital dollar. A poll in September 2022 by the Independent Community Bankers of America found that more than half of those surveyed said a U.S. CBDC would increase the risk of a breach of their personal financial privacy and security.

In addition, 64% said they’d rather have their personal bank account with a private commercial bank than with the Fed.

In a survey of 2,000 Americans by the libertarian think tank Cato Institute in May determined that only 16% supported the idea of a U.S. digital dollar, with 34% opposed. Another 49% were undecided.