No CBDC Act would ban Federal Reserve from creating a “Central Bank Digital Currency,” a government-run cryptocurrency
“What’s in your wallet?” If this bill’s sponsors have their way, not central bank digital currency.
Context
Cryptocurrency is a form of nongovernmental and anonymized digital money. The most prominent example is Bitcoin, which currently comprises 39% of cryptocurrency’s total market cap.
Crypto’s nongovernmental nature is simultaneously among its biggest attributes and its biggest pitfalls, since it’s not minted or controlled by any central authority. It’s mostly unregulated in the U.S., though the Biden administration’s SEC (Securities and Exchange Commission) added some light regulations in April.
Ditto for the anonymity of crypto transactions, which is simultaneously one of its biggest selling points and biggest dangers. Proponents that it protects personal privacy and liberty, while critics note that crypto has become the preferred payment medium for hackers and terrorist organizations.
According to the Atlantic Council’s CBDC tracker, 11 countries have fully launched a central bank digital currency, while another 14 have launched a pilot program. One of those 14 is China, which in January launched a trial run for a central bank digital currency (or CBDC), which combines the digital payment traditionally associated with cryptocurrency, but with government control and oversight.
That same month In the U.S., the Federal Reserve released a paper titled “Money and Payments: The U.S.Dollar in the Age of Digital Transformation,” which floated the possibility of creating a similar domestic CBDC. The Fed has clarified that, so far, no such official decision has been made either way.
What the bill does
The No CBDC Act would prevent the Federal Reserve, or any other governmental authority, from creating a central bank digital currency.
It was introduced in the Senate on September 13 as S. 4831, by Sen. Mike Lee (R-UT).
What supporters say
Supporters argue that a CBDC would destroy the attributes which lie at the very heart of cryptocurrency’s possibilities and potential.
“Because of its superior security technology, [cryptocurrency] is well-suited to uphold Americans’ fundamental liberties, like due process and protection against unreasonable search and seizure,” a fact sheet from Sen. Lee’s office wrote. “Beyond financial security, crypto’s applications could bring down costs for domestic and international remittances, investments, internet access, and more.”
“An American CBDC would offer U.S. citizens nothing that they cannot already obtain through private financial innovation,” the statement continued. “Instead it could make their every transaction known to the Federal Reserve, while converting banks and credit unions into merely wallets rather than private lending institutions.”
What opponents say
Opponents counter that the world of financial markets is rapidly changing, and the government needs to change with it.
“The share of U.S. payments made by cash has declined from 31 percent to 20 percent just over the past five years, and the share is even lower for those under age 45,” Federal Reserve Vice Chair Lael Brainard said in House Financial Services Committee testimony in May. “As we assess the future digital financial system, it is prudent to consider how to preserve ready public access to safe central bank money, perhaps through the digital analogue of the Federal Reserve’s issuance of physical currency.”
Opponents also say that China is an apples-and-oranges comparison, because China banned cryptocurrencies in 2021, making their own government’s CBDC the only cryptocurrency legally available in the authoritarian state. In the U.S., by contrast, a CBDC would serve as a governmental option in addition to other nongovernmental offerings, similar to how the U.S. Postal Service exists alongside private companies like FedEx and UPS.
Odds of passage
In addition to its Republican lead sponsor, the bill has attracted two cosponsors, both Republicans: Sen. Mike Braun (R-IN) and Sen. James Lankford (R-OK).
In theory, the Democratic party’s anti-establishment wing could support this bill on civil liberties grounds. (Edward Snowden, the digital surveillance whistleblower who many progressives support, came out strongly against a CBDC.) However, no Democrats have yet signed on as cosponsors.
Odds of passage are low in the Democratic-controlled chamber.
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This article was written by GovTrack Insider staff writer Jesse Rifkin.
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