(Kitco News) – U.S. House of Representatives Majority Whip Tom Emmer (R-MN) reintroduced his CBDC Anti-Surveillance State Act on Tuesday, a piece of legislation he said was designed to “halt the efforts of unelected bureaucrats in Washington, D.C. from issuing a central bank digital currency (CBDC) that dismantles Americans’ right to financial privacy.”
According to the press release, Emmer was joined by the bill’s 50 original cosponsors in reintroducing the legislation intended to block the Federal Reserve from issuing a digital dollar. They warned such a payment vehicle “could give the federal government the ability to surveil Americans’ transactions and choke out politically unpopular activity.”
Specifically, the CBDC Anti-Surveillance State Act – which was first proposed by Emmer in January 2022 and formally submitted to Congress in February – prohibits the Federal Reserve from issuing a CBDC directly to individuals, ensuring the central bank cannot transform itself into a retail bank able to collect personal financial data on Americans.
It also prohibits the Fed from indirectly issuing a CBDC to individuals through an intermediary, or from using any CBDC to implement monetary policy, ensuring the Federal Reserve cannot use a CBDC as a tool to control the American economy.
“The administration has made it clear: President Biden is willing to compromise the American people’s right to financial privacy for a surveillance-style CBDC,” Emmer said. “That’s why I’m reintroducing my landmark legislation to put a check on unelected bureaucrats and ensure the United States’ digital currency policy upholds our values of privacy, individual sovereignty, and free-market competitiveness.”
He added that a government-issued CBDC that does not emulate cash – meaning it is not open, permissionless, and private – is “nothing more than a CCP-style surveillance tool that would be used to undermine the American way of life.”
Digital dollar hearing in the House
On Thursday, the House of Representatives Financial Services subcommittee held a hearing entitled, “Digital Dollar Dilemma: The Implications of a Central Bank Digital Currency and Private Sector Alternatives,” during which five expert witnesses were called to testify.
The hearing was a largely partisan affair, in keeping with the fact that the sponsors of the CBDC Anti-Surveillance State Act are all Republicans, with subcommittee chair French Hill (R-AR) saying, “There is no support for a CBDC in Congress except from those on the fringes,” and Rep. Emmer calling CBDCs “a tool the Communists have.”
On the opposite side of the aisle, subcommittee ranking member Stephen Lynch (D-MA) warned of “false narratives and fear-mongering, much of it coming from the cryptocurrency industry itself,” and announced the creation of a congressional Digital Dollar Caucus.
Lynch also used the opportunity to reintroduce his Electronic Currency and Secure Hardware (ECASH) Act, which calls for a Treasury Department pilot program for developing a digital U.S. dollar. Lynch said the pilot would complement a Fed-issued CBDC and make progress toward better financial inclusion for citizens now outside the financial system.
“As digital payment and currency technologies continue to rapidly expand and with Russia, China, and nearly 130 countries worldwide already researching and launching some form of Central Bank Digital Currency, it is absolutely critical for the U.S. to remain a world leader in the development and regulation of digital currency,” Lynch said in a Thursday statement about his bill.
“By establishing a pilot program within Treasury for the development of an electronic U.S. Dollar, the ECASH Act will greatly complement and advance ongoing efforts undertaken by the Federal Reserve and President Biden to examine potential design and deployment options for a digital dollar,” he said. “Importantly, this pilot program will also preserve a role in our financial system for smaller anonymous cash-like transactions which are currently transacted in physical dollars and which have seen a rapid decline in use.”
The witnesses at the hearing included Yuval Rooz, Digital Asset CEO, Paige Paridon, senior vice president of the Bank Policy Institute, the University of Pennsylvania’s Christina Parajon Skinner, Dr. Norbert Michel from the Cato Institute, and Columbia University lecturer Raúl Carrillo.
For the most part, they argued against the creation of a digital dollar and instead touted the creation of private-sector alternatives to CBDCs.
“To date, we have seen little evidence that a CBDC would bring measurable benefits to the U.S. economy or to consumers and substantial evidence that it could present serious risks to financial stability,” said Paridon. “Because a CBDC could undermine the commercial banking system in the United States and severely constrict the availability of credit to the economy, we agree with the Federal Reserve’s conclusion that it should only take further steps toward developing a CBDC ‘if research points to benefits for households, businesses, and the economy overall that exceed the downside risks, and indicates that CBDC is superior to alternative methods’ and only with legislative authorization and the support of the Executive Branch.”
Skinner said “Although the United States should prioritize leadership in payments innovation and safeguard the dollar’s reserve-currency status, CBDC does not obviously advance those goals. Technology and economic geopolitics can change rapidly, to be sure; but at least right now, the costs of introducing CBDC appear to outweigh the benefits.”
According to Dr. Michel, “A CBDC does not offer any unique benefit to the American people, but it does pose serious risks to financial privacy, freedom, markets, and cybersecurity. It is distinct from both privately issued stablecoins and the faster payment networks recently launched by private banks and the Fed.”
“A CBDC would ultimately usurp the private sector and endanger Americans’ core freedoms; it has no place in the American economy,” he added. “Congress should explicitly prohibit the Federal Reserve and the Department of the Treasury from issuing a CBDC.”
Carillo adopted a more constructive tone, saying, “Should we choose to build the Digital Dollar system, it will impact everyone, just like any other major national infrastructure project, with significant political consequences.”
“The development process must be more democratic so that private actors and obscure public bureaucrats from any agency do not inadvertently become the only official stakeholders and set the terms of the debate for everyone else,” he said. “Policymakers should support an array of Digital Dollar pilot programs and develop a steady rhythm of innovation, aiming to build a safe and secure financial system for all.”
And Rooz, the only witness representing a private business, made two requests of the subcommittee as they deliberate on the creation of a digital dollar.
“First, that Congress ensures that any digitally-represented dollar, whether a stablecoin or a central bank digital currency, lives within our Constitutional framework,” he said. “Americans using this digitally-represented dollar should have the assurance that their privacy rights are protected under our Fourth Amendment framework.”
“And second, that Congress works closely with the private sector, and leverages technologies already built and proven, to serve as the rails for any digitally-represented dollar,” Rooz said. “Any solution that ignores private sector innovation risks technological stagnation and will undermine our global competitiveness.”
Digital Asset Anti-Money Laundering Act
In other crypto-related legislative developments, Politico reported that Senator Elizabeth Warren’s bipartisan Digital Asset Anti-Money Laundering Act has gained backing from an additional nine senators, including Homeland Security Chair Gary Peters (D-MI) and Judiciary Chair Dick Durbin (D-IL).
The bill now has a total of 12 co-sponsors, with Sen. Roger Marshall (R-KS) as the lead co-sponsor, and Sen. Joe Manchin (D-WV) and Sen. Lindsey Graham (R-SC) as the other original co-sponsors.
The Act is intended to enhance regulatory oversight within the growing digital asset industry by addressing the existing loopholes and aligning the digital asset ecosystem more closely with the established anti-money laundering and countering the financing of terrorism (AML/CFT) frameworks that govern the broader financial system.
Sen. Warren and her fellow lawmakers are pushing to expand the scope of the Bank Secrecy Act and implement know-your-customer (KYC) requirements for digital asset wallet providers, miners, and other participants within cryptocurrency networks.
“Without tougher controls, decentralized digital assets can pose a significant risk to our national security by facilitating the financing of illicit activities, such as drug trafficking or money laundering from terrorists and rogue state actors,” said Sen. Manchin. “Our bipartisan legislation would curtail these security risks and require cryptocurrency platforms to abide by the same anti-money-laundering rules that banks have to follow. I urge my colleagues on both sides of the aisle to support this commonsense legislation to protect Americans by preventing bad actors from using cryptocurrencies to finance their criminal activities.”