Representative Alex Mooney of West Virginia introduced a bill in the U.S. House of Representatives to close a “loophole” that the Federal Reserve Bank could exploit to create the exploratory Central Bank Digital Currency (CBDC) pilot program. H.R. 3712 defines CBDC as “a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the Federal Reserve.”
“Congress cannot give an inch when it comes to CBDCs,” said Mooney. “CBDCs would threaten the liberties of law-abiding Americans and are being used by authoritarian countries right now to crack down on dissent.”
H.R. 3712 would amend the Federal Reserve Act to deny the Federal Reserve the power to “establish, carry out, or approve a program intended to test the practicability of issuing a central bank digital currency, including by partnering or coordinating with a private sector entity to carry out such a program.”
The Federal Reserve could only establish such a program if “authorized by an Act of Congress enacted after the date of the enactment” of H.R. 3712.
The Federal Reserve issued a paper in January of 2022 on “the pros and cons of a potential U.S.” CBDC, Money and Payments: The U.S. Dollar in the Age of Digital Transformation, which acknowledged the Federal Reserve lacks the authority to create a direct-to-consumer CBDC.
“The Federal Reserve Act does not authorize direct Federal Reserve accounts for individuals, and such accounts would represent a significant expansion of the Federal Reserve’s role in the financial system and the economy.”
The paper, however, argues the Federal Reserve has the authority to create an “intermediate” CBDC, under which “the private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments.” Under the intermediate model, the CBDC would still be the Federal Reserve’s liability.
Potential benefits of CBDC, according to the Federal Reserve, include “provid[ing] households and businesses a convenient, electronic form of central bank money, with the safety and liquidity that would entail” and “support[ing] faster and cheaper payments”
Critics of CBDC, such as the Cato Institute, have argued CBDC is bad for privacy, security, and liberty.
With centralized financial information, a breach would affect all citizens, whereas the current decentralized storage of financial information in individual banks means “a breach at a private financial institute would only affect a fraction of citizens.”
A centralized financial network, the Cato Institute argues, would be more vulnerable to a cyberattack compared to the current decentralized financial network because, under a CBDC system, there exists only one target: the Federal Reserve.
CBDC, according to the Cato Institute, would allow the government to more easily freeze or seize assets and to place restrictions on spending:
The programming capabilities of a CBDC could mean that people would be prohibited from buying certain goods or limited in how much they might purchase. For example, policymakers could try to curb drinking by limiting nightly alcohol purchases or prohibiting purchases for people with alcohol related offenses. (emphasis original)
A representative of the Federal Reserve declined to comment on H.R. 3712.
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