James Field
The CBDC Anti-Surveillance State Act passed the United States House of Representatives in a largely partisan vote on May 23. The bill still faces a vote in the—currently—Democrat held Senate, but if passed, it would prevent the issuance of a CBDC without the explicit authorization of Congress.
The bill was introduced into the House by Rep. Tom Emmer (R-MN) in February 2023 and would amend the Federal Reserve Act of 1913 to prohibit Federal Reserve banks “from offering certain products or services directly to an individual, to prohibit the use of central bank digital currency for monetary policy, and for other purposes.”
In September, the U.S. House Financial Services Committee approved the bill, progressing it to a full House vote. Initially, it was announced that the CBDC Anti-Surveillance State Act might be up for a vote alongside the bipartisan and much-anticipated Clarity for Payment Stablecoins Act, raising fears the decidedly partisan former bill would derail the latter.
In the end, the CBDC bill was pushed forward on its own and passed by a vote of 216-192.
“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,” said Emmer on Thursday.
“My legislation ensures that the United States’ digital currency policy remains in the hands of the American people so that any development of digital money reflects our values of privacy, individual sovereignty, and free market competitiveness.”
Debate flares up partisan divisions
In the pre-vote debate on the bill, Republicans stoked fears about the surveillance state and the potential abuse of CBDCs, pointing to China’s digital yuan as a cautionary tale, while Democrats focused on innovation, the dollar’s international competitiveness, and the bill’s poor drafting.
“We live in a world where the government can abuse the tools it has,” said French Hill (R-AR), Chairman of the Financial Services Committee Subcommittee on Digital Assets, Financial Technology and Inclusion.
Other Republicans went further in their rhetoric. Mike Flood (R-NE) asked the House to “imagine the politician you despise the most” with control over a CBDC, while Financial Services Committee member Warren Davidson (R-OH) called the New York Fed’s CBDC pilot, “the same creepy surveillance tool” as China’s digital yuan.
The Federal Reserve Bank of New York’s ‘Project Cedar‘ was launched in 2022 “to develop a technical framework for a theoretical wholesale central bank digital currency (wCBDC) in the Federal Reserve context.”
The project is a proof-of-concept pilot, but Davidson argued it “could be developed to something further,” saying that the Fed was not responding to the dialog, so it must respond to the law.
His concerns were supported by Alexander Mooney (R-WV), author of an amendment to the bill that would restrict CBDC research and put the kibosh on pilots, such as Project Cedar. A CBDC should not be “available at a moment’s notice,” said Mooney.
From the Democrat side of the House, the wording and implications of the bill were disputed. Brad Sherman (D-CA) called the bill a “word salad” that favored “crypto bros.” Adding that no one would be required to use a CBDC.
Financial Services Committee ranking member Maxine Waters (D-CA) also lamented the bill’s confusing wording, suggesting that it could be interpreted as a ban on Federal Reserve holdings of bank reserves, which is necessary to administer payment systems.
“[The bill] blocks the American economy as it operates today and has for decades,” said Waters, who noted it wasn’t clear in its language around retail CBDCs and wholesale CBDCs either. The bill is aimed at banning the former but could be construed as a ban on the latter as well.
A retail CBDC is a form of central bank digital currency that is used by the general public (such as the digital yuan); a wholesale CBDC, on the other hand, is used among banks and other licensed financial institutions for interbank payments and securities transactions (a much more common and less controversial form of digital currency that’s the subject of numerous pilots around the globe).
Waters also argued that the bill would “risk undermining the primacy of the U.S. dollar” globally, and the country could end up falling behind its international peers and competitors. A warning supported by a recent World Economic Forum (WEF) report, which stated:
“Over 98% of the global economy’s central banks are researching, piloting or deploying central bank digital currency (CBDC). There is an opportunity to harness this innovation in central bank money to enhance systemically important payments and securities transactions between financial institutions.”
Another Democrat, Financial Services Committee member Jake Auchincloss (D-MA), argued that his proposed Power of the Mint Act would accomplish similar goals in terms of requiring congressional authorization prior to the introduction of a CBDC by the Federal Reserve, but without the drawbacks of the bill under consideration. However, his proposal was blocked by Republicans.
The CBDC Anti-Surveillance State Act will now progress to a senate vote, the time and date yet to be decided. With the Senate majority currently favoring the Democrats and an election looming in November, the scheduling of the vote may be crucial.
To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.
Watch: Blockchain provides perfect foundation for CBDC
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