House Approves Bill to Prevent the Federal Reserve from Issuing a Central Bank Digital Currency

CBDC Anti-Surveillance State Act Passed in the House

On May 23, the United States House of Representatives passed the CBDC Anti-Surveillance State Act, largely along partisan lines. The bill, which must still be voted on in the Senate, proposes amendments to the Federal Reserve Act of 1913. The amendments would prevent Federal Reserve banks from offering certain products or services directly to individuals and would prohibit the use of central bank digital currency (CBDC) for monetary policy, among other things.

Debate Over the Bill

The debate over the Republican-backed bill was not widely attended. Republicans highlighted the potential for misuse of a CBDC, while Democrats focused on innovation, the competitiveness of the dollar internationally, and the poor drafting of the bill. French Hill, Chairman of the Financial Services Committee Subcommittee on Digital Assets, Financial Technology and Inclusion, expressed concerns about the potential for government misuse of its tools. Representative Mike Flood urged the audience to consider the danger of a despised politician having control over a CBDC.

Concerns Over Surveillance and Control

Financial Services Committee member Warren Davidson referred to the New York Fed’s Project Hamilton as a surveillance tool similar to China’s digital yuan. He expressed concerns that the pilot project could be further developed and emphasized that the Fed must respond to the law. Davidson described a digital currency as a surveillance tool that could lead to coercion and control, questioning its enablement. Davidson argued that the Fed should not pursue a digital currency without Congressional authorization, stating that it has no place in a free society. He also referenced the digital yuan, the blocking of bank accounts in Canada during a trucker drivers' protest against COVID-19 vaccination, and the works of George Orwell, among other things, in his arguments.

Implications of the Bill

The implications of the bill were a point of contention. Brad Sherman referred to the bill as a “word salad” that favored cryptocurrency enthusiasts, adding that no one would be required to use a CBDC. While Republican arguments centered on a retail CBDC, Financial Services Committee ranking member Maxine Waters suggested that the bill could also be interpreted to ban a wholesale CBDC. She argued that the bill could undermine the primacy of the U.S. dollar globally and could potentially ban Federal Reserve holdings of bank reserves, which are necessary for administering payment systems.

Alternative Proposals

Financial Services Committee member Jake Auchincloss proposed an alternative bill, the "Power of the Mint Act," which he claimed would achieve similar goals without the drawbacks of the current bill. However, his proposal was blocked by Republicans. The CBDC Anti-Surveillance State Act was introduced to the House by Rep. Tom Emmer in February 2023 and was passed by a vote of 216-192.

The Threat of "Biden Bucks"

For the past two years, there have been warnings about the emergence of central bank digital currencies, often referred to as “Biden Bucks” in the U.S. These digital currencies would replace the current cash dollar and would be fully backed by the U.S. Federal Reserve. If implemented, they could become the sole, mandatory currency of the United States. The concern is that this could lead to greater government control over money, making it less truly owned by individuals. While proponents argue that a digital dollar would simplify and streamline the payment system, critics worry about the potential loss of personal privacy.

Government Control and Abuse of Power

Critics argue that the implementation of Biden Bucks could lead to new ways for the government to control purchases and track financial decisions. They point to recent examples of government overreach and abuse of power, such as the targeting of opposition and the criminalization of political opposition.

State Opposition to CBDCs

Several states, including Indiana, Florida, North Dakota, South Dakota, Tennessee, Utah, Alabama, and Georgia, have passed laws to block the imposition of CBDCs. While proponents of Biden Bucks argue that federal law takes precedence over state law under the federal Supremacy Clause, critics hope that the states might provide the best defense against the implementation of Biden Bucks.

What's Your Take?

This development raises important questions about the balance between innovation, privacy, and government control. What are your thoughts on the CBDC Anti-Surveillance State Act and the potential implementation of a central bank digital currency in the U.S.? Share this article with your friends and let's get the conversation started. Don't forget to sign up for the Daily Briefing, delivered every day at 6pm.