An ambitious markup of thirteen bills was on the docket for today’s markup by House Financial Services Committee led by Chair Patrick McHenry (R, NC) and Ranking Member Maxine Waters (D, CA).
The markup’s themes – led by the Republican majority but coordinated with Democrats – included protecting consumer privacy and preventing the overreach of government. There was also bipartisan legislation protecting United States’ national security interests particularly as it related to China.
Overall, most of the hearing’s tone was one of cooperation across the aisle and was reflected in unanimous passage of every bill not related to Central Bank Digital Currencies (CBDCs).
So, perhaps due to the expectation of extended debate, blockchain-related legislation containing various restrictions on a Central Bank Digital Currency (CBDC) were last on the Committee’s agenda.
With several CBDC bills to pursue, the Republican majority, led by Chair McHenry, apparently decided to solely pursue passage of H.R. 5403, the “CBDC Anti-Surveillance State Act” by Majority Whip Rep. Tom Emmer (R, MN). The bill bans the issuance of a CBDC (but the Fed can study it, as Republicans later emphasized).
See the post-hearing press release from the GOP.
tl;dr – the voting
The voting for H.R. 5403, the “CBDC Anti-Surveillance State Act” was approved along party lines with a vote of 27-20 which sends the bill to the House floor.
Ranking Member Waters and Rep. Stephen Lynch’s (D, MA) attempts to add amendments “softening” Rep. Emmer’s bill were both rejected along party lines in a votes of 27-20, as well.
Rep. Emmer announced the bills’ passage immediately after the hearing. Read it.
the CBDC markup
As the Central Bank Digital Currency (CBDC) portion of the markup arrived, it was clear that Democratic leadership wanted any digital currency associated with the U.S. Dollar in the hands of the Federal government. The mostly-unspoken implications for private stablecoins was that Democratic leadership was opposed.
After Chair McHenry’s opening statement (read it), Ranking Member Waters made her statement which criticized the Republican anti-CBDC view.
Waters said, “Nobody fully understands the potential benefits and challenges of CBDCs or how their implementation could affect the preeminence of the US dollar and global finance more broadly. That is why the Biden administration and the Federal Reserve are researching this. However, the Republican bill before us today would stifle that research and prevent us from moving forward, even if it means that the dollar loses its status as the world’s reserve currency. And even if it means that US citizens lose out on faster, cheaper and simpler payments. I’m disappointed that Republicans have taken such a deeply anti-innovation stance.”
The “anti-innovation” accusation is an about-face to Democratic leadership’s positioning against the recent stablecoin and digital asset market structure bills which could be considered “pro-innovation.”
Federal control over technology innovation (Democratic leadership) versus private or state control/enablement (Republicans) remains a line in the sand for digital assets – but with a caveat. A smaller group of HFS Democrats, perhaps representing a generational shift among Democrats, which has included Members such as Rep. Ritchie Torres (D, NY), Rep. Josh Gottheimer (D, NJ) and Rep. Jim Himes (D, CT) has also supported to varying degrees Republicans’ digital asset legislative initiatives.
CBDC Member debate
Discussion of the CBDC bills led Chair McHenry to recognize Majority Whip Emmer and his bill.
Rep. Emmer began, “The CBDC Anti-Surveillance State Act” … (…) it’s the first anti-central bank digital currency legislative effort introduced in the United States and for the past two Congresses. And we’ve worked with my colleagues along with stakeholder groups to update, improve and grow support for this bill. Today, this bill has the support of 60 members of Congress and groups ranging from the Independent Community Bankers Association and American Bankers Association to Club for Growth, Heritage Action and the Blockchain Association…”
Ranking Member responded in her five minutes and urged opposition of the Emmer bill. She said, “Unfortunately, this bill which I will call the “CBDC Anti-Innovation Act” introduced by Representative Emmer would permanently shut down the important work the Fed is doing to research a potential U.S. CBDC and the benefits different types of CBDCs could bring to our payment system. Specifically, it would prevent the Fed from issuing a CBDC directly to an individual, as well as on a wholesale level between banks. Our continued research on CBDCs could be critical to maintaining our position as a principal global reserve currency. We don’t know at this point how CBDCs could shake the global financial landscape.”
Rep. Lynch followed Ranking Member Waters, stated his opposition to the Emmer bill, but asked for clarification on it in that a later section of the legislation seemed to “negate” an earlier section.
Rep. Warren Davidson (R, MA) offered forceful support of the Emmer bill saying in part, “We need to preserve what this bill says… a permissionless, peer-to-peer payment system like cash, something that does not have an intermediary between the owner of private property and the government.”
In explaining his rejection of the Emmer bill, Rep. Brad Sherman (D, CA) offered, “I’m struck by the hypocrisy of the advocates of cryptocurrency. They come in and they say cryptocurrencies are wonderful because it’s digital and it’s high-tech and its innovative. And then they propose a bill – which in the words of the Ranking Member – is an anti innovation bill.” He believed anti-CBDC advocates were anti-Dollar.
Rep. French Hill (R, AR) said about the Power of the Mint Act – co-introduced by Rep. Jake Auchinclose (D, MA) – that it was an evolution of Emmer’s Anti-CBDC Act. “And I think this is a strong bipartisan view that we saw in our hearing last week that people on both sides of this aisle agree that we cannot issue a central bank digital currency by the United States government without an act of Congress.”
Citing the Fed’s “Money and Payments: The U.S.Dollar in the Age of Digital
Transformation” (read it), Rep. Lynch interjected his belief in the importance of maintaining CBDC exploration for the United States, “We can develop something that will protect consumer privacy, to protect the privacy of American citizens. That should be the goal. It is the stated goal of the Federal Reserve, and the folks at MIT, and the Boston Fed with respect to Project Hamilton, is geared towards asking some of the main questions that we have around a central central bank digital currency , but that process is still ongoing. So I just want to point out this bill does nothing nothing for privacy for American citizens. American citizens are losing their privacy every day because of the private sector that we have right now that allows total, full spectrum surveillance of American citizens on every purchase that they make during the day, even their movements. (…) Americans have lost their, their right to privacy.”
After, Rep. Dan Meuser (R, PA) stated his support to the Emmer bill, Rep. Hill took time to respond to Rep. Lynch and defended the anti-CBDC bill’s interests in privacy as well as, what he believed was, inconsistencies in Lynch’s views give a “no” vote on related privacy legislation, “The Data Privacy Act” (H.R. 1165).
Rep. Bill Foster (D, IL) took his turn pointing at private sector cryptocurrency saying, “… I’d also like to point out that with a huge majority of the American public, the idea of a permissionless, untraceable, electronic currency is a non-starter that is simply a code for ransomware, fentanyl sales, money laundering, human trafficking – everything that we’re seeing here – and we should not have the government standing behind such a product…”
Rep. Andy Barr (R, KY) expressed his support for the Emmer bill and provided an oft-stated Republican view: “It is becoming more and more common to hear constituents back home voicing their concerns regarding the federal government’s intrusion into financial privacy – and they look at China and they fear that a Fed issued digital currency is on track to be the next digital Yuan.”
In yielding her time to Rep. Lynch, Rep. Sylvia Lynch (D, TX) leveled with the Committee, “I’m just really a little perplexed…. this whole notion of surveillance, capitalism being the reason why people are unbanked and government surveillance, and all the things you were talking about, I just don’t think that the average person in my district even knows what surveillance capitalism is. I’m not sure all the members of this committee do.”
Rep. Lynch then decried the private stablecoin approach versus, at least, supporting exploration of the government run CBDC. Lynch called Emmer’s bill “breathless stupidy” in terms of removing the United States from a process of financial innovation. “This bill will take the US out of the game,” concluded Lynch.
Next, Rep. Scott Fitzgerald (R, WI) said he was in support of the Emmer bill and attempted to tamp down Democratic leadership’s concerns about stopping innovation. He said, “The bill would simply codify what many have said all along, which is an establishing a central bank, digital currency would only be possible if authorized by Congress.” Rep. Davidson, who had taken the gavel while Rep. McHenry was out of the Committee room, reiterated that this bill does not prevent research by the Federal Reserve.
Rep. Ayanna Pressley (D, MA) drew underserved communities into the discussion around CBDCs and the Emmer bill and stressed the importance of public banking. “We need public banks more than ever and their role is critical in uplifting low income communities, improving racial equity. Public banks will be held accountable by the public, not shareholders. Public banks represent a step forward for our financial system. So passing this bill through committee would be a giant leap backwards,” said Rep. Pressley.
Rep. Sherman took part of Pressley’s time saying, “People aren’t banked because they oppose the ‘surveillance state.’ People aren’t banked because they don’t have any money.”
Rep. Mike Flood (R, NE) said he supported the Emmer bill and outlined an anti-CBDC point-of-view, “The Federal Reserve would be at the center of every American transaction, it could be used to prevent certain types of disfavored purchases, block certain disfavored people from using our financial system, or monitor the payment activities of political opponents.”
Ranking Member Waters introduced an amendment to the Emmer bill that connected national security to the CBDC debate and suggested that United States needs to stay in front of CBDC innovation or risks falling behind. Her amendment would apparently make sure the Federal Reserve was not stopped in its research of a central bank digital currency.
Republicans rejected the Democratic leadership’s amendment as Bryan Steil (R, WI) said, “We should prevent the development of a central bank digital currency in the United States to protect the privacy of US citizens.” Rep. Sherman responded that the private sector was not to be trusted with U.S. citizens’ data.
Rep. Pete Sessions (R, TX) was against the amendment saying, “I can almost think of nothing worse than empowering a government that doesn’t listen to its people, doesn’t listen to members of this committee, doesn’t listen to the needs of a marketplace, but rather the needs of government.” He believed American power was at the core of the anti-CBDC position.
After further debate, Rep. Lynch introduced another amendment for the Emmer bill that requires any CBDC development by the Federal Reserve to protect against surveillance of consumers.
The Committee then moved to recess for the final vote.