On May 23, the U.S. House of Representatives passed the CBDC Counter-Surveillance State Act, which seeks to amend the Federal Reserve Act of 1913. The bill, which now awaits a Senate vote, aims to prohibit Federal Reserve banks from offering certain products or services directly to individuals and restricts the use of central bank digital currencies (CBDCs) for monetary policy and other purposes. The vote on this Republican-backed bill was marked by a significant party divide.
The debate on the bill saw limited attendance, with Republican supporters emphasizing the potential misuse of CBDCs. They argued that such digital currencies could be abused by governments. French Hill, chair of the Financial Services Committee’s Subcommittee on Digital Assets, Fintech, and Inclusion, highlighted the risks of governmental overreach. Representative Mike Flood urged the audience to consider the dangers if a despised politician controlled a CBDC.
Financial Services Committee member Warren Davidson compared Project Hamilton, a pilot project for a U.S. CBDC, to China's digital yuan, labeling it a "creepy surveillance tool." Davidson and other Republicans expressed concern that the Federal Reserve had not adequately addressed these issues, necessitating legislative intervention. Representative Alexander Mooney, who proposed an amendment to limit CBDC research, argued against making a CBDC immediately available due to potential risks.
Democratic opposition focused on the bill's potential to hinder innovation and the dollar's international competitiveness. They criticized the bill's poor drafting and suggested it could unintentionally prohibit wholesale CBDC, which could harm the dollar's global dominance. Maxine Waters, Ranking Member of the Financial Services Committee, warned that the bill might also interfere with the Federal Reserve’s ability to manage the payment system by prohibiting the Fed from holding bank reserves.
Additionally, Waters highlighted the potential benefits of zero-knowledge proof technology to ensure user privacy and argued that stablecoins pegged to the U.S. dollar might lose value, unlike CBDCs. Financial Services Committee member Jake Auchincloss pointed out that his proposed Mint Powers Act would achieve similar goals without the current bill's flaws. However, his bill has been blocked by Republicans.
The CBDC Counter-Surveillance State Act was introduced by Representative Tom Emmer in February 2023 and passed the House with a vote of 216 to 192. The bill's future now depends on the Senate, where further debate and amendments are likely to take place.
