Congressman Patrick McHenry announced that the U.S. House Financial Services Committee would review two bills related to a potential central bank digital currency (CBDC) on September 20.
The first bill, the Digital Dollar Pilot Prevention Act — H.R. 3712 — seeks to prevent the Federal Reserve from initiating CBDC pilot programs without congressional approval. The second bill proposes an amendment to the Fed Act, restricting Fed banks from directly offering certain products or services to individuals.
Representative Alex Mooney introduced the first bill in May in response to the potential introduction of a CBDC in the U.S. The Fed asserted that it would only decide on CBDC issuance with proper authorization by law. However, the San Francisco Fed has recently recruited technical staff for a CBDC project, indicating that the digital dollar remains under consideration.
Meanwhile, the second bill restricts the use of CBDCs in monetary policy and delineates additional constraints regarding their application. This amendment aims to set forth well-defined boundaries and restrictions governing the deployment and roles of a CBDC.
"A Federal Reserve Bank shall not offer a central bank digital currency or any digital asset that is substantially similar under any other name or label, indirectly to an individual through a financial institution or other intermediary," read the bill.
A CBDC is described as a digital representation of fiat currency, offering the advantages of digital assets.
#NEW: Chairman @PatrickMcHenry announces a markup of legislation to strengthen American national security and prevent the issuance of a central bank digital currency.— Financial Services GOP (@FinancialCmte) September 16, 2023
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Controversy surrounding CBDCs
Critics argue that CBDCs threaten individuals' privacy and enable extensive government control. Meanwhile, proponents view them as a means to encourage wider adoption of blockchain technology.
Presidential candidate Ron DeSantis mentioned financial privacy concerns related to CBDCs. Addressing the Family Leadership Summit on July 14, DeSantis pledged that if elected president, he would ban CBDCs in the U.S.
"If I am the president, on day one, we will nix central bank digital currency. Done. Dead. Not happening in this country," he said.
As Florida governor, DeSantis enacted a law that forbids the use of federal CBDCs as a form of currency in May. He also banned the use of foreign CBDCs since it would result in a massive shift of authority from consumers to a central entity.
The Fed indicates no immediate intentions of introducing a digital dollar, but analysts say this stance may shift after the upcoming election. Several candidates are discussing crypto-related matters in their early campaign phases.
For instance, Robert F. Kennedy Jr., as part of his bid for the Democratic Party presidential nomination, has been advocating for Bitcoin. Previously, he revealed Bitcoin investments totaling up to $250,000, contradicting his earlier statement where he denied being a holder of the top cryptocurrency.
The debates surrounding central bank digital currencies extend beyond the U.S. Many countries, such as China, have been investigating and advancing the concept to different degrees. CBDCs are a potential means to achieve financial inclusion, improve payment systems' efficiency and enhance monetary policy effectiveness.
Cointelegraph's CBDC database indicated growth in CBDC projects in recent years. More than 100 countries are actively exploring this technology. At least 39 nations are engaged in CBDC pilots, proof-of-concept studies or other related initiatives.
In China, the central bank has rolled out the digital yuan in certain regions. It serves as a method for China to transform its physical banknotes and coins into a digital form, facilitating cashless transactions.
Unlike cryptocurrencies like Bitcoin, the digital yuan does not function as an alternative currency. It accommodates transactions that are not entirely anonymous and is designed as a legal tender within China.