Today, the House Financial Services Subcommittee on Digital Assets, Financial Technology and Inclusion convened a hearing titled, “Digital Dollar Dilemma: The Implications of a Central Bank Digital Currency and Private Sector Alternatives.” View the hearing page. And, see the video.
Just before the hearing began, Rep. Stephen Lynch (D, MA), who is also the Ranking Member of the HFS Digital Assets Subcommittee, drew the battle lines with Republicans beginning with an announcement about the creation of the Digital Dollar Caucus, a list of whose membership is expected within a week according to a spokesperson. The Ranking Member also reintroduced H.R. 5410, “the Electronic Currency and Secure Hardware (ECASH) Act, which would develop an electronic version of the U.S. Dollar for use by the American public.” Co-sponsors include Democrats Rep. Ayanna Pressley (MA), Rep. Rashida Tlaib (MI) and Rep. Jesus Garcia (IL) – none of whom are on the Digital Assets Subcommittee. Read the press release.
Digging into the text of the bill, the ECASH Act asks U.S. Treasury “to develop and pilot digital dollar technologies that replicate the privacy-respecting features of physical cash.” See it.
FedNow, stablecoins, ECASH, CBDCs.. the lines are blurring.
Lynch’s legislation mingled with the hearing’s other bills which were skeptical of a CBDC, at best, including: Majority Whip Rep. Tom Emmer’s [H.R. 1122] “CBDC Anti-Surveillance State Act,” the bipartisan “Power of the Mint Act” [H.R. 3402] and the “Digital Dollar Prevention Act” [H.R. 3712] with 19 Republican co-sponsors.
battle lines
Overall, HFS Republicans are united against a CBDC. It should also be noted they are also clearly for the recent stablecoin and digital asset market structure bills.
The HFS Democratic caucus, however is split on the stablecoin and digital asset market structure bills as shown by the July markups. And now the CBDC question is bringing to light still more fissures as it relates to Democratic members of the Digital Assets Subcommittee.
Democratic leadership
At the hearing, Digital Assets Subcommittee Ranking Member Lynch, brought his firebrand style and announced the importance of openness to a CBDC, chided Republicans in the process as well as the digital assets industry for fear-mongering about CBDCs. Lynch suggested the United States is falling behind the rest of the world.
Later, HFS Ranking Member Maxine Waters (D, CA) echoed Lynch’s thoughts making clear that Democratic leadership had, in a way, switched sides – they now viewed blockchain technology as something that could be used beneficially by the United States unlike Dem leadership’s antagonistic view to the stablecoin bill and its support of states’ rights as well as the digital assets market structure bill which was a non-starter for Democratic leadership as exhibited at the July markup hearing.
more fissures
During the course of the hearing, Rep. Sean Casten (D, IL) was the first Democrat to challenge Democratic leadership’s stance and expressed no interest in a CBDC.
After making the point that “fractional banking” would be inhibited by a government-issued CBDCs (a retail CBDC can’t be leveraged or loaned according to witnesses), Casten asked rhetorically about a CBDC: “Why do we care?” He concluded, “… [within modern banking] somebody has to make the case for this actually being useful for currency, and not just for money laundering, and not just for speculative bubbles before I think we have something to worry about.” Rep. Casten seems to believe blockchain technology as unnecessary for – and potentially damaging to – the U.S. financial system.
Rep. Brad Sherman (D, CA), perhaps the harshest critic of crypto and the digital assets industry on the HFS Committee in the past, brought up “Operation Choke Point” (from 2013) and remarkably agreed with his Republican colleagues that it’s a concern. He used Planned Parenthood as an example. Sherman said, “How will that sound when Planned Parenthood can’t get the bank account? The power to take somebody out of the banking system is the power to impair, if not destroy them.” Nevertheless, Sherman said he wanted to maintain the access for law enforcement.
Rep. Sherman decried the current money transfer system run by the Fed due to hacks and fraud, and worried about similar occurrences with a CBDC. He was also concerned about a retail CBDC potentially inhibiting local business loans made.
Rep. Wiley Nickel (D, NC) talked about his co-sponsorship of the bipartisan Power of the Mint Act emphasizing that it’s important Congress maintains its authority to authorize a CBDC. But, he further identified the double-edged sword of CBDCs: other countries are moving ahead of the United States with CBDC development plans.
Wiley explained, “We can’t afford to fall behind or lose our global influence. On the other hand, we must approach this innovation (CBDC) cautiously, especially in light of the Chinese Communist Party’s use of its CBDC. I have concerns surrounding privacy and surveillance, which is why we need to continue studying this issue.”
no shows
Also of note: Digital Assets Subcommittee Vice Chair Rep. Josh Gottheimer (D, NJ) and Rep. Ritchie Torres (D, NY) were “no shows” for the hearing.
Coincidence or silent protests? Here’s a few reasons there may be a message in the absences…
Gottheimer and Torres both supported the recent stablecoin bill passed out of HFS in July. Stablecoin support and CBDC support do not mix.
Rep. Gottheimer was preparing his own stablecoin bill last year.
Rep.. Torres expressed recent support for New York Department of Financial Services rights to oversee stablecoin issuance. Democratic leadership has been pushing hard to make Federal oversight the priority.
And then there’s Torres co-sponsorship of the Keep Innovation In America Act introduced by HFS Chair Patrick McHenry (R, NC) in March. Democratic leadership has yet to get behind the bill.
Republicans
In his opening remarks, Digital Assets Subcommittee Chair Rep. French Hill (R, AR) started with a sense of openness to ideas on a Central Bank Digital Currency (CBDC). Hill said, “I’d also like for Members to hear from our witnesses not only about Communist China’s proposed digital yuan, but what steps the United Kingdom and the European Union have taken and why.” But, he turned sharply to Republicans’ unequivocal view that only Congress has the power to authorize a CBDC. Read his remarks.
Other Republicans speaking included Majority Whip Rep. Tom Emmer (R, MN) also made an opening statement that urged colleagues to consider the unwanted surveillance capabilities of a CBDC and re-iterated the need for his anti-CBDC legislation.
Rep. Mike Flood (R, NE) stated he was against a CBDC and said, “The Federal Reserve would be at the center of every American tracks transaction, it couldn’t be used to prevent certain types of disfavored purchases block certain disfavored people from using our financial system, or monitor the payment activities and political opponents.
Rep. William Timmons (R, SC) – sounding a bit like Democrat Rep. Sean Casten – said CBDCs are a “solution searching for a problem” and explored cyber issues. Cato Institute’s Norbert Michel, one of five hearing witnesses, warned about the potential for hacks of the Federal Reserve because a CBDC would be centralized. “The government’s not good at this stuff,” said Rep. Timmons.
witnesses
Last but not least, the five witnesses proved to offer hearing participants with a robust eduction on the finer points of Central Bank Digital Currencies. Not only were the opening statements and prepared testimonies mostly insightful, but so were their answers to Member questions.
Of the five witnesses, only Mr. Raúl Carrillo of Columbia Law school appeared to be pro-CBDC – and therefore a witness likely selected by Democratic leadership.
Carrillo brought up another key theme for Democratic leadership and some CDBC advocates: the idea that having a government-run CBDC is important in combatting the interests of “big tech.”
Also notable: in a moment of rare tension during the hearing, Cato Institute’s Dr. Norbert Michel respectfully challenged Rep. Bill Foster (D, IL) in a discussion about the Bank Secrecy Act.
Mr. Michel: “I think you should be able to have a private transaction without AML. That’s that’s absolutely correct.”
Rep. Foster: “So you’re in favor of the ransomware basically, that we should not…”
Mr. Michel: “I did not say that and I hope the record reflects that…”
Rep. Foster: “Okay, no, I understand, but you’re…. the system that allows ransomware to exist is something that you’re in favor of preserving…”
Mr. Michel: “… No, ransomware exists whether the system allows it or not.”
of note
As he adjourned the meeting, Chair Hill announced the admission of several letters from traditional finance organizations including the American Bankers Association, the Electronic Transaction Association, Independent Community Bankers of America and the Credit Union National Association into the hearing record. Those letters could be revealing on TradFi digital assets views today.