WASHINGTON — Lawmakers on both sides of the aisle said at a Thursday hearing of the House Financial Services Committee digital assets panel that a Fed-issued retail central bank digital currency could stifle bank lending and grant excessive power to the Federal Reserve, highlighting the significant political headwinds facing any proposal to create a digital dollar.
Subcommittee chair French Hill R-Ark., likened a retail CBDC to an
"Some of us that oppose a U.S. CBDC warn, for example, that an unchecked government could monitor your purchases at the gun store, flag you as a threat, cut off your access to your bank accounts, even though you haven't done anything illegal," Hill said. "You think operation choke point was bad? Let that sink in."
Congressman Brad Sherman, D-Calif. — an unlikely ally to many of his Republican colleagues on this particular issue — also expressed concerns about how a Fed retail CBDC could enable the executive branch to pick and choose which industries could have access to banking. He noted while Operation Choke Point targeted traditional Republican allies like gun makers, the policy could just as easily be wielded by a GOP administration to target industries Democrats favor.
"I know there were some on the Democratic side who said, 'Yes, go after payday lenders and go after gun manufacturers,'" he said. "How will that sound when Planned Parenthood can't get a bank account? The power to take somebody out of the banking system is the power to impair if not destroy them."
While the effects of a retail CBDC gave some in both parties pause, others members noted their interest in further exploring a CBDC's potential costs and benefits. Rep. Steven Lynch, D-Mass., who serves as the subcommittee ranking member,
"[CBDC] could serve as an alternative to existing forms of payments and have a benefit, including instant payment settlement, providing a medium for cross-border transactions and fostering greater financial inclusion," he said.
At the same time that many GOP members worried the government could use the CBDC to restrict funds for certain industries, more
"A CBDC is nothing more than a CCP style surveillance tool that will oppress the American way of life and we're not going to allow that to happen," said Rep. Tom Emmer, R-Minn.
Notably, regulators
One witness, Mr. Raúl Carrillo, law lecturer Columbia Law School noted that concerns about privacy should be viewed in the context of the status quo — where data breaches of private companies regularly imperil people's personal information. He cited the
"When discussing privacy, the digital dollar system and CBDC should be compared to the existing systems that we are already using," he said. "The private sector does not protect data security or data privacy sufficiently. Crude opposition to CBDC based on surveillance grounds with no comparison to a real baseline is
The Fed has been exploring the merits of U.S. CBDC for some time. The agency
Testimony from bank industry representative Paige Pidano Paridon of the Bank Policy Institute revealed the sector's ongoing concern that a CBDC could potentially upend fractional reserve banking.
"Like an asset held in custody, the CBDC could not be used by the bank to make loans in the way that dollar deposits are used today," she said in her testimony. "[A bank] would have to essentially keep that CBDC under the proverbial mattress, and it would not be able to be redeployed in the form of loans."
She also noted that CBDCs could draw away flighty deposits from the highly regulated banking system. Particularly during times of economic stress, she said, the perceived safety of a CBDC could also lead depositors to flee to the safety of a government backed asset.
The American Bankers Association also released
Fed Vice Chair for Supervision
"The Federal Reserve has made no decision on issuing a CBDC and would only proceed with the issuance of a CBDC with clear support from the executive branch and authorizing legislation from Congress," Barr said.
