In a bid to ostensibly protect Americans’ privacy and buttress the US dollar’s position as the global reserve currency, US Representative Tom Emmer, a Republican, has introduced a bill amending the US Federal Reserve charter preventing the central bank from directly issuing digital currency to individuals.
But with the People’s Republic of China already planning its own central bank digital currency, some think a Federal Reserve stablecoin isn’t only an eventuality, but a necessity.
The bill aims “to amend the Federal Reserve Act to prohibit the Federal reserve banks from offering certain products or services directly to an individual, and for other purposes.”
“Section 13 of the Federal Reserve Act is amended by adding at the end the following new paragraph: Except as specifically authorised under this Act, a Federal Reserve Bank may not offer products or services to an individual, maintain an account on behalf of an individual, or issue a CBDC directly to an individual.”
Federal Reserve studying CBDCs
The US Fed is currently studying the risks and benefits of CBDCs, including the potential design of any US dollar-backed stablecoin. At issue is Federal Reserve, and by extension the US Government, control over a centralised blockchain and its ability to track payment activity.
Although created by The Federal Reserve Act of 1913, the Federal Reserve and its member banks are private corporations and are not an agency of the US government. The Fed is, however, ultimately accountable to the Board of Governors of the Federal Reserve System, which is a US Government agency.
“As other countries, like China, develop CBDCs that fundamentally omit the benefits and protections of cash, it is more important than ever to ensure the United States’ digital currency policy protects financial privacy, maintains the dollar’s dominance, and cultivates innovation,” Emmer said in a statement announcing the bill.
“CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilise itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely.”
Fed is not a retail bank
Emmer also reiterated that the Federal Reserve is not a retail bank and therefore is not authorised to offer individual bank accounts, something Fed Chair Jerome Powell noted during Senate confirmation hearings this week.
“Requiring users to open an account at the Fed to access a United States CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism,” Emmer said in an accompanying Twitter thread.
Emmer also pointed to security concerns, as a cyberattack would make Americans’ financial information vulnerable, something he called a “single point of failure” issue.
Any future Fed involvement in digital currency has to be open, permissionless and private, Emmer said, with an open blockchain accessible to all, not just the Federal Reserve.
Currently, the bill has no co-sponsors, but Emmer sits on the House Financial Services Committee, which could put it on a fast track for a floor vote in the Democratic Party-controlled House.
Dushan Ratkovic, a cryptocurrency analyst at Fundamental Research Corp., doesn’t believe this bill will, or should, become law due to the US Government desire to maintain hegemony over international trade.
“There are two things in play here,’ Ratkovic said. “First we think the Fed will move ahead with a CBDC to maintain (the US Dollar’s) dominance in the world as the global reserve currency and to alleviate any further adoption risk of private crypto assets for reasons such as illicit activity.”
“We don’t think this bill passes,” Ratkovic added. “The US has to be in this space.”
Ratkovic speculated that for such a bill to be introduced, despite no pending plans for the US Fed to offer a CBDC, “there must be something going on in the background,” the public is currently unaware of.
Emmer, a vocal critic of over-regulating cryptocurrencies and blockchain technology, previously co-wrote a letter with Rep. Darren Soto, a Florida Democrat, petitioning US Securities & Exchange Commission Chairman Gary Gensler to allow a spot-price indexed exchange-traded fund.
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