Republicans on the House Financial Services Committee are urging Federal Reserve Board Chair Jerome Powell to proceed with caution and concern when considering a potential U.S. Central Bank Digital Currency (CBDC).
In a letter to Powell, the Republicans, led by U.S. Rep. Tom Emmer (R-MN), ranking member of the Subcommittee on Oversight and Investigations, and House Financial Services Committee Ranking Member Patrick McHenry (R-NC), outlined the principles the Fed should follow in addressing a CBDC.
“Without caution, a U.S. central bank digital currency could put us on track to China’s digital authoritarianism. I am proud to join Ranking Member McHenry to examine what problems a central bank digital currency would solve before we develop and launch one,” Emmer said. “Any United States CBDC must be open, permissionless, and private – like cash. Anything less is a disservice to the American people and our democratic values.”
First, the Fed should identify the inefficiencies in the U.S. payment system and whether a CBDC solves them. This should include whether a CBDC increases greater access to banking services for traditionally unbanked and underbanked communities.
Second, they say the private sector must lead the way in innovation.
“The Fed has historically supported responsible private-sector innovation,” the committee members wrote to Powell. “Future digital currency policies must continue to promote private sector innovation and foster competition. Potential regulations for emerging payment technology should seek to target the specific uses and activities and mitigate discrete, identified potential risks. Policies should not disallow or regulate the underlying technology.”
The lawmakers also contend that stablecoins, if issued under a regulatory framework, hold promise as a potential cornerstone of a modern payment system. “Transacting in stablecoins has the potential to be a more efficient, faster, and less expensive payment option than what currently exists. These benefits would extend to the very consumers and small businesses a CBDC purports to help. Thus, we request the Fed provide a detailed analysis on any potential impact to the stablecoin market of a CBDC,” they wrote.
Third, they would like to see an analysis of the possible impact of a CBDC on the Fed’s monetary policy tools and decision-making. The analysis should look at whether a CBDC could result in adverse unintended consequences for monetary policy implementation or require the use of unconventional policy tools. They also ask the Fed to examine any potential threats to financial stability through bank runs that may result from transfers of commercial bank deposits into CBDC accounts.
Fourth, the Fed should ensure privacy and security. It is critical to understand the potential impact a digital currency will have on Americans’ civil liberties and privacy rights before any legislative action is considered.