During a Congressional hearing regarding central bank digital currency on Tuesday, the prospect of China setting the norm and deploying the digital yuan for cross-border payments as well as China’s capacity to monitor was extensively debated.
Congressman Patrick McHenry expressed worry, stating that “if we do not act as Americans, international settlements and remittances may go to a regime that we do not like”. Democrat Congressman Jake Auchincloss had the same stance as McHenry,
I found the case for CBDCs for geo-economic and strategic purposes very compelling. And I understand why the United States needs to catch up, both to retain its economic leverage, retain the U.S. dollar as the (global) reserve currency.
On a related point, several members raised the topic of retaining the United States’s ability to enforce sanctions. Jake Auchincloss, on the other hand, had mixed feelings about using a CBDC for domestic purposes. And he asked if it was feasible to move forward with an international CBDC while delaying domestically. Multiple witnesses agreed that it made sense to resolve domestic difficulties before moving on to international concerns.
Auchincloss also raised concerns that if the Federal Reserve provided direct payments to citizens, this would be considered fiscal policy and would fall outside of the Fed’s jurisdiction. Several Members of Congress raised similar concerns, while others, such as Congresswoman Ocasio-Cortez, pointed out how to direct Fed payments may have decreased COVID relief payment delays.
She was followed by Republican Warren Davidson, who questioned the attendees on whether it was more essential for the US dollar to remain the world’s reserve currency or for the US to have sound money. Davidson then said that helicopter money is killing the dollar, which is why alternative currencies are gaining popularity.
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There are many arguments against helicopter money. Most economists and investors fear that, unlike QE, helicopter money is harder to drain from the system and the excess money could spur long-term inflation over time however far-fetched that may seem in the current environment. Davidson continued that,
There’s a coveting of the power that China would have by being able to create this creepy surveillance tool. Of being able to know everything about every person, including every transaction and, honestly, the capacity to filter such transactions via the state’s power. I suppose if you’re a statistician, you’d appreciate that tool
Davidson then went on to express his concerns about negative interest rates and how the Federal Reserve might potentially place expiry dates on people’s savings accounts. He concluded that a CBDC would have to operate without the requirement for authorisation. Warren Davidson was also present at the Bitcoin 2021 conference in Miami earlier this month, there Davidson stressed the importance of privacy and how any kind of digital dollar should offer the same traits as that of physical cash today.
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