House FinTech Task Force Considers Implications of CBDCs

The U.S. House Financial Services Committee Taskforce on Financial Technology considered the implications of central bank digital currencies ("CBDCs") as they pertain to (i) trade-offs in the design of different technological infrastructures, (ii) consumer privacy and (iii) increased access to financial services.

At the hearing, titled "Digitizing the Dollar: Investigating the Technological Infrastructure, Privacy and Financial Inclusion Implications of Central Bank Digital Currencies," legislators heard from:

• Carmelle Cadet, Founder and CEO, EMTECH. Ms. Cadet stated that the United States needs to invest in a "Digital Cash Infrastructure" that would enable the government to directly distribute real cash to people. Ms. Cadet argued that a blockchain-based CBDC with a distributed ledger technology is the best option for the United States to create a "modern and safe currency system around its central banking structure." Ms. Cadet recommended that the main objective for a U.S. CBDC be "a clear mandate" to (i) safeguard the public interest, (ii) enhance financial inclusion and (iii) develop an efficient payment system for all people. Ms. Cadet emphasized that the United States should explore a CBDC to (i) reduce payment costs for Americans and the U.S. government, (ii) aid in combating money laundering, and (iii) uplift the nation's economy.

• Jonathan Dharmapalan, Founder and CEO, eCurrency. Mr. Dharmapalan outlined the fundamental preconditions to be met in order for the United States to issue a CBDC. These include (i) having clear policy objectives to guide the design of the CBDC, (ii) ensuring wide-ranging stakeholder support, (iii) maintaining a solid legal framework for the CBDC's issuance, distribution, use and destruction, (iv) bolstering technology to assure that the CBDC will be safe and efficient and (v) preparing the market to ensure that the CBDC is widely accepted and adopted.

• Rohan Grey, Assistant Professor of Law, Willamette University. Mr. Grey stated that policymakers should take into consideration that the digital fiat currency landscape is larger than that of CBDCs. He said that public agencies outside of the Federal Reserve (e.g., Treasury and the United States Postal Service) have roles to play in the development of digital fiat currency services with any CBDC system. He underscored that token- and account-based monies have different functionalities, safety considerations and resilience and should complement each other, not serve as substitutes for one another. Mr. Grey suggested that Treasury create and operate an "eCash" system for digital dollar tokens that mirrors the functions and features of real currency but in the digital space. Mr. Grey emphasized that "the right to transactional privacy and anonymity is a bedrock of political freedom and democracy, and should not be abandoned as we transition to a permanently digitally connected society."

• Dr. Neha Narula, Director of the Digital Currency Initiative, MIT Media Lab. Ms. Narula urged collaboration among academic researchers and the public and private sectors to answer critical questions around the development of a U.S. CBDC. Ms. Narula stated that Treasury and the Federal Reserve should dedicate more resources to research and development, and she recommended that the government rely on the principles of open-source software development to build a consensus among a variety of stakeholders.

• Dr. Jenny Gesley, Foreign Law Specialist, Library of Congress. Ms. Gesley recommended that central banks consider (i) their legal authority to issue a digital currency, (ii) compliance with AML and counter-terrorism financing regulations, (iii) the effect of adopting a CBDC on the commercial banking sector, (iv) the implications of a CBDC for central bank independence, (v) the consequences of different design technicalities and (vi) the effect on underbanked communities.