The concept of a central bank digital currency (CBDC), according to Republican Congressman Tom Emmer, poses a danger to American ideals of privacy, individual autonomy, and free markets. Emmer warned against the idea that the US would lag behind other countries that are creating their own CBDCs while speaking at a panel organized by the Cato Institute.
He described CBDCs as a struggle for power between the government and its citizens. While some have indicated that the technology might enhance financial inclusion and lower costs for consumers, the Federal Reserve has stated that it will not issue a CBDC without written consent from Congress.
Emmer is worried about how a CBDC in the US might affect financial privacy, give governments access to personal spending data, or be used to “choke out politically unpopular activity.” CBDCs are digital tokens that are issued and managed by the various governments or central banks and are tied to the value of a sovereign currency. According to the Atlantic Council’s CBDC tracker, around 90 nations worldwide are either testing, developing, or researching CBDCs, including the US.
At the same time, Emmer drew attention to a bill he proposed last month that would restrict the Fed’s authority to issue a CBDC directly to individuals, despite the fact that the Fed has consistently stated that it would require congressional clearance to do so.
In the meantime, Michael Barr, the Federal Reserve’s vice chair for supervision, discussed CBDCs at a Peterson Institute for International Economics event. Barr said that a US CBDC should have the same level of “insulation” from government oversight as bank deposits do currently. Barr acknowledged privacy concerns raised over the creation of a CBDC. The Fed is “very focused on research and development,” he continued, for a prospective CBDC, although it is yet unclear whether the technology would be applied.
During congressional testimony yesterday, Fed Chairman Jerome Powell refrained from declaring with certainty whether a CBDC may harm stablecoins already in operation, explaining that a lack of regulation renders the reserves of some opaque. Stablecoins, however, according to Barr, need some sort of federal regulation because they are private forms of currency that depend on the reputation of the US.
“They’re a form of private money that borrows the trust of the central bank, and I think [it’s] absolutely critical that we get the regulatory oversight of that right,” he said. “I think there’s a critical role for Congress to play right now in establishing a framework.”
Stablecoins might gain popularity among some people if a CBDC is introduced in the US “if they’re worried about privacy and they don’t trust the government,” Barr noted.
There are arguments on both sides regarding the advantages and disadvantages of CBDCs, as well as their potential influence on the US financial system and economy. While some experts believe CBDCs can help foster financial inclusion and innovation, others warn that they may erode privacy and tighten government control over people’s financial lives.