The House has passed legislation that would stop the Federal Reserve from issuing a central bank digital currency, a victory for privacy advocates who argue that such a CBDC could give the federal government vast new powers to micromanage citizens’ lives.
The House voted 216-192 in favor of the legislation Thursday, sending the CBDC Anti-Surveillance State Act to the Senate for consideration. The bill was sponsored by House Majority Whip Tom Emmer (R-MN), who has said such a bill was needed to prevent government overreach and protect financial privacy.
The legislation would block the Federal Reserve from issuing a CBDC directly to people, a step justified as ensuring the central bank cannot collect personal financial data. It also blocks the Fed from indirectly issuing a CBDC to people through an intermediary.
Additionally, the bill prevents the central bank from using any CBDC to implement monetary policy.
Emmer has said that a CBDC would put the United States in league with authoritarian countries like China, which has the digital renminbi, with equivalent value to the Chinese yuan. He said the bill would ensure that U.S. digital currency policy “upholds our values of privacy, individual sovereignty, and free-market competitiveness.”
“If not designed to be open, permissionless, and private — emulating cash — a government-issued CBDC is nothing more than a CCP-style surveillance tool that would be used to undermine the American way of life,” Emmer said when the bill was introduced.
A CBDC is a form of digital currency issued by a central bank. In the case of the U.S., that would be the Fed. So, with a CBDC, consumers would be able to use digital money issued directly by the Fed in addition to physical money like cash. Proponents argue that a centralized dollar would help prevent bank bailouts and increase efficiency.
The concerns arise with how much control the Fed would have over that digital currency and how it would be used by consumers. If the central bank had direct control of the specific dollars in a given account, it could, in theory, easily seize accounts or monitor spending by people. Those powers would raise Fourth Amendment concerns, critics say.
The conservative America First Policy Institute said in a report that a CBDC would raise questions about whether the government could use such access to circumvent warrants. Currently, with private banks facilitating transactions, to get that information, a judge must grant a warrant.
“By allowing the government to implement a CBDC, whether a wholesale, intermediated, or direct CBDC, the United States would open a Pandora’s box, wherein the government could have the power to completely suppress or cut financial services from any individual or entity they desired,” the group said.
Some Democrats, though, contend Emmer’s legislation could tie the Fed’s hands and hurt competition between the U.S. and other world powers.
The Fed has conducted some research on a CBDC, and Financial Services Committee ranking member Maxine Waters (D-CA) argued the bill would hamper its efforts.
“Instead of taking steps to ensure the United States wins the digital currency space race against emerging powers like China, Republicans are making baseless attacks against the CBDC that does not even exist,” she said.
In 2022, the Federal Reserve Bank of New York and major banks announced the launch of a three-month test of a digital dollar that hoped to study its feasibility.
Additionally, that same year, the Fed took its first step toward weighing the use of a CBDC when it released a discussion paper and opened a four-month public comment period to receive input.
Outside groups have been pushing lawmakers to pass the new CBDC legislation, arguing that a centralized currency could do damage to civil liberties in the U.S.
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Conservative group Heritage Action said in a statement ahead of the vote that a CBDC could mean “government surveilling personal finances.”
“Anti-CBDC legislation is necessary to safeguard Americans’ financial privacy in the face of potential surveillance, control, and political intimidation. Heritage Action and our two million grassroots activists nationwide support congressional action on this issue,” Heritage Action Executive Vice President Ryan Walker said.