CRS Identifies Policy Considerations on CBDC Issuance
Commentary by Steven Lofchie
The Congressional Research Service ("CRS") highlighted policy issues raised by central bank digital currencies ("CBDCs").
In an In Focus report, CRS said members should consider whether a CBDC could:
- present greater legal and practical challenges in cross-border payments than domestic use;
- displace private activity by partially displacing crypto and maintaining the government’s role in issuing money;
- promote financial inclusion which would "depend largely" on whether CBDCs were less expensive and easier to access than traditional banking services;
- prevent bank runs through a "partial shift" from private bank accounts, or if bank runs would be more likely because of a consumer’s option to switch to an alternative to CBDC accounts during periods of bank distress;
- prevent illicit activity, such as tracking and storing information regarding users and transactions of CBDC which CRS said might reduce user privacy but ultimately curb criminal activity, including money laundering and other illicit activities; and
- potentially cause the U.S. dollar to decline if central banks in other countries offer cross-border payment options via CBDC initiatives.
CRS also identified countries that have issued or are considering the issuance of a CBDC. CRS said that while multiple jurisdictions, including the Bahamas, Jamaica, and Nigeria, have fully launched a CBDC, China has progressed the furthest in CBDC development after piloting the digital yuan. In addition, CRS stated that central banks in advanced economies, including the European Central Bank, the Bank of England and the Swiss National Bank, are conducting research on and/or piloting CBDCs. However, CRS pointed to countries, such as China, Iran, Russia and Venezuela that have been examining the use of CBDCs as a way to reduce (i) reliance on the U.S. dollar and (ii) vulnerability to U.S. sanctions.
CRS cites the Federal Reserve Board's definition of a CBDC as a "digital liability of a central bank that is widely available to the general public." CRS said that the FRB stated in January 2022 (see previous coverage), that it does not intend to issue a CBDC without clear support from the executive branch and Congress, ideally in the form of a specific authorizing law. However, as directed under Executive Order 14067, the U.S. government "should prioritize timely assessments of the potential benefits and risks" of CBDC types that would ensure that the United States "remains a leader in the international financial system."
Commentary
The Federal Government appears to be on a path toward the issuance of a dollar CBDC, including by attempting to clear away potential competitors, such as stablecoins, through enforcement actions. The FRB says that it will not go forward with a CBDC without clear approval from Congress, but does not say whether such clear approval would be in the form of a law. How else would Congress give such approval? In light of the policy implications of a dollar CBDC noted in the CRS report, the determination of whether to go forward should be a matter of Congressional discussion and legislation.
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