CBDCs – The Federal Reserve versus The Senate

A huge conflict on CBDCs (central bank digital currencies) is fast approaching in the United States. 

The Federal Reserve’s board of governors published a report outlining the advantages and disadvantages of developing a U.S. CBDC in response to competition from foreign powers. Jerome Powell, the Fed’s chair, has declared the creation of a U.S. CBDC a top priority for the administration.

Meanwhile, a coalition of five U.S. senators is taking a stand against the Biden administration’s initiative to launch a “digital dollar,” co-signing a bill that calls for the prohibition of central bank digital currencies (CBDCs).

On February 26, Senator Ted Cruz, alongside Senators Bill Hagerty, Rick Scott, Ted Budd, and Mike Braun, introduced the CBDC Anti-Surveillance State Act, aiming to curb the Federal Reserve’s capacity to issue a CBDC. These senators express concerns that such a digital currency could lead to government surveillance and encroach upon individual freedoms.

Senator Cruz is urging Congress to explicitly state that the Federal Reserve lacks the jurisdiction to roll out a CBDC, with the proposed bill directly challenging the Fed’s ability to “provide specific products or services directly to individuals, to restrict the usage of a central bank digital currency for monetary policy, among other objectives.”

Senators Scott and Budd emphasized the importance of safeguarding American citizens’ financial privacy. Budd further remarked, “The introduction of a CBDC would grant the federal government unprecedented access to monitor and influence Americans’ spending. It is imperative to counter any efforts to establish a CBDC, a cause I am proud to support alongside Senator Cruz.”

Cruz’s statement regarding the bill portrays CBDCs as “government-managed programmable money,” capable of gathering sensitive personal data and potentially enabling the tracking and freezing of individual funds without justification.

If enacted, this legislation would necessitate a congressional mandate for any future issuance of a CBDC, effectively preventing the Federal Reserve from transforming into a consumer-facing bank.

The bill has garnered the endorsement of five senators and is backed by several organizations, including Heritage Action for America, the Blockchain Association, the American Bankers Association, the Independent Community Bankers Association, and the Club for Growth.

Contrastingly, former President Donald Trump, a 2024 presidential candidate, has vowed to block the creation of a CBDC, praising Vivek Ramaswamy for spotlighting the potential adverse effects of such currencies.

The Federal Reserve acknowledges that while a major, stable foreign CBDC may not undermine the dollar’s role as a reserve currency, it could diminish its function as a medium of exchange.

Supporters of a U.S. CBDC argue that it would reinforce the dollar’s global dominance, whereas critics fear it would lead to greater governmental control, privacy violations, and the arbitrary freezing of assets.

The Fed’s research paper, authored by senior economic analysts, delves into the potential impact of a U.S. CBDC on the international standing of the dollar, suggesting that without a competitive CBDC, the dollar might lose its preeminence in global transactions.

While politicians and policy wonks debate the issue, citizens are not in favor yet, as evidenced by a May 2023 poll showing only 16% support for a CBDC among U.S. respondents.