House Financial Services Committee Considers CBDC Issuance

The House Financial Services Committee heard testimony from witnesses regarding the implications of the issuance of a Central Bank Digital Currency ("CBDC") on the U.S. financial system.

• Bank Policy Institute Senior Vice President and General Counsel Paige Paridon. Ms. Paridon argued that there is little evidence that a CBDC would "bring measurable benefits to the U.S. economy, or that it is necessary to defend the dollar’s status as the world’s reserve currency." She said that the United States should observe the European Union’s experimentation with a CBDC before moving forward.
• Digital Asset Holdings, LLC Co-Founder and CEO Yuval Rooz. Ms. Rooz urged Congress to (i) ensure U.S. privacy rights are protected in association with the use of any digitally represented dollar and (ii) work closely with the private sector to make existing technologies "serve as the rails for any digitally represented dollar."
• Cato Institute Center for Monetary and Financial Alternatives Vice President and Director Norbert J. Michel. Dr. Michel asserted that a CBDC does not provide any "unique benefit" and asked that Congress "explicitly prohibit" the FRB and Treasury from issuing a CBDC. He warned that because a CBDC is distinct from privately issued stablecoins and faster payment networks launched by private banks, it would "ultimately usurp the private sector" and pose serious risks to financial privacy.
• The Wharton School of the University of Pennsylvania Assistant Professor Christina Parajon Skinner. Ms. Skinner stated that CBDC would weaken banks. She said that the introduction of CBDC would move demand for money away from the private sector and toward the FRB. Specifically, consumers would be more likely to substitute CBDC for their demand deposits than for their cash holdings "given the privacy-premium cash still commands."
• Columbia Law School Academic Fellow and Lecturer in Law Raúl Carrillo. Mr. Carrillo identified "faulty assumptions" surrounding the digital dollars, including the "myopic concentration" on CBDC as the only possibly format for digital fiat currency and the FRB as the only institution that could issue the currency. He said that the discussion should also include Treasury and its various bureaus. Mr. Carrillo stated that another "mistaken assumption" is that "we do not already live in a financial surveillance state." Mr. Carrillo testified that "background laws allow the government to evade data collection constraints by acquiring data from private sector entities"; the result, he said, is that "financial institutions, technology companies (including blockchain companies), and U.S. government agencies collectively enjoy virtually unfettered access to our financial records and regularly share data, information, and knowledge." In spite of privacy concerns, he argued that CBDC should not be discarded based on surveillance grounds.

Additionally, committee members considered the following legislative proposals:

• H.R. 3402, the "Power of the Mint Act," which would prohibit the FRB and Treasury from issuing CBDCs without authorization from Congress;
• H.R. 3712, the "Digital Dollar Pilot Prevention Act," which would require congressional action to permit the FRB to issue CBDCs; and
• H.R. ____, the "CBDC Anti-Surveillance State Act," which would amend the Federal Reserve Act to prohibit (i) certain products or services to be offered by Federal Reserve Banks and (ii) the use of CBDCs for monetary policy.