Cryptocurrency

CBDC bill: Why Republicans say they fear a central bank digital currency – Washington Examiner


House Republicans are set to pass a bill that will block the Federal Reserve from implementing a central bank digital currency. Here is what CBDCs are and why privacy advocates fear them.

This week, the House of Representatives will vote on legislation sponsored by House Majority Whip Tom Emmer (R-MN) called the CBDC Anti-Surveillance State Act. The bill is relatively straightforward, but in sum would stop the Fed from issuing any form of CBDC without congressional approval.

The legislation is expected to pass in the House, where Republicans hold the majority, and could even earn some bipartisan support. But the bill faces a tougher battle in the Democratic-controlled Senate and would have to get a stamp of approval from President Joe Biden should it become law before the next session of Congress.

What is a CBDC?

A central bank digital currency is a form of digital currency issued by a central bank — in the case of the United States, that would be the Fed. With a CBDC, consumers would be able to use the digital currency issued directly by the Fed in addition to physical money such as cash.

In theory, a CBDC allows users to easily transfer money between digital wallets and buy goods and products all using the same node, which is the central bank. That might sound similar to cryptocurrencies like Bitcoin or Ethereum, but the difference is that a CBDC would be issued directly through one entity, the Fed, rather than maintained on a decentralized public ledger, as bitcoin is.

Countries around the world have become increasingly intrigued by the notion of a CBDC, with China being the biggest world power to embrace such a centralized currency so far. China has the digital renminbi, also known as the digital yuan. Residents in China can use digital currency just like they would cash but through specialized digital wallets.

What are the concerns?

While the use of a central bank digital currency might sound convenient and the centralization of the currency organized, Republicans argue that a CBDC could be used nefariously to undermine people’s civil liberties and spy on them.

Emmer told the Washington Examiner during an interview ahead of the vote that he sponsored the bill to prevent abuses of government and protect privacy rights. He said China is already using its digital yuan to surveil its citizens.

“They control all the data that comes from your financial transactions, and they are building social scores,” Emmer said of China. He also said that during the pandemic lockdowns in Wuhan, China, the Chinese government was able to control the finances of residents so they couldn’t buy transportation out of the city.

Emmer said the bill was drafted so the U.S. could not someday use a centralized currency to also control and monitor the spending of its citizens.

“So what we’re worried about is the surveillance part of it the government having all this information which they should not have,” the congressman said.

Nicholas Anthony, a policy analyst at the libertarian Cato Institute, noted that banks and financial institutions are already required to report millions of transactions to the federal government because they are considered suspicious or over $10,000.

“Now, with a CBDC however, it takes all of those transactions and all other financial activity and puts it on a government database by default,” he told the Washington Examiner. “So there’s no longer that air gap between you and the government that is currently the private sector.”

Anthony said the financial information could reveal things such as one’s political leanings, work, religion, charitable donations, and even location.

“And unfortunately, throughout history, we’ve seen both here and abroad, how that can be taken and abused,” Anthony added. “So it’s very much a deep concern with CDC.”

Any form of CBDC promulgated in the U.S. would likely have guardrails to prevent government abuse. But guardrails tend to devolve over time, Anthony said.

“We can see that, from all the way back to 1970 with the Bank Secrecy Act, designed to only look at foreign bank accounts, how that has quickly changed over time to then check what every person doing in the country from just large transactions to potentially suspicious transactions,” he said, adding that the Patriot Act then took it even further.

Notably, Emmer said the first draft of the bill was written as a blanket prohibition on all CBDCs. But now, the legislation leaves the door open to a digital dollar as long as it completely emulates cash in that it is “open, permissionless, and private” and is approved by Congress, he said.

In 2022, the Federal Reserve Bank of New York and major banks announced the launch of a three-month test of a digital dollar that hoped to study its feasibility.

Additionally, that same year, the Fed took its first step toward weighing the use of a CBDC when it released a discussion paper and opened a four-month public comment period to receive input.

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Democrats have argued that the Emmer bill would stop the Fed from conducting research on a CBDC, but he told the Washington Examiner that the central bank would still be able to research the matter, just not implement a digital currency.

Emmer’s CBDC bill has little chance of passing the Senate and being signed into law by President Joe Biden. But he said if Republicans win the White House in November, it would be among the priorities high on the Republican legislative agenda.



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