Five Republican senators have introduced legislation aimed at preventing the Biden administration from issuing a central bank digital currency (CBDC). The effort, spearheaded by Texas Senator Ted Cruz, claims that CBDCs would intrude on “the privacy of citizens to surveil their personal spending habits.”
“Congress must clarify that the Federal Reserve has no authority to implement a CBDC,” Cruz said in a statement.
“A CBDC would open the door for the federal government to surveil and control the spending habits of all Americans,” said Senator Ted Budd of North Carolina, a co-sponsor of the bill. “Any push to establish a CBDC must be confronted and stopped, and that’s why I’m proud to join Senator Cruz’s effort to do just that.” Other sponsors include Bill Hagerty of Tennessee, Rick Scott of Florida, and Mike Braun of Indiana.
Focus on Privacy Concerns
“Senator Cruz and others are responding to one of the highest concerns about a CBDC: privacy,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. “It’s a fine line to walk on, and once you cross it there’s no going back. They have to get it right if they want to get it passed.”
The Treasury Department followed up that order with recommendations to the president in March 2023. At that time, Under Secretary for Domestic Finance Nellie Liang said: “The Fed has also emphasized that it would only issue a CBDC with the support of the executive branch and Congress, and more broadly the public.” She also said that Treasury’s CBDC Working Group would continue examining the issue.
The Biden administration has not yet introduced plans for a CBDC. In March 2022, the White House called for the Federal Reserve to “continue to research and report on the extent to which CBDCs could improve the efficiency and reduce the costs of existing and future payments systems, to continue to assess the optimal form of a United States CBDC, and to develop a strategic plan for Federal Reserve and broader United States Government action, as appropriate, that evaluates the necessary steps and requirements for the potential implementation and launch of a United States CBDC.”
A CBDC Can Take Many Forms
Experts have pointed out that the GOP’s objections are to a specific form of CBDC that is not likely to be the instrument’s final form. “The anti-CBDC bill is aimed at a retail version of a digital dollar, meaning a central bank digital currency issued to consumers by the Federal Reserve,” said James Wester, Director of Cryptocurrency and Co-Head of Payments at Javelin Strategy & Research. “What most opponents are reacting to is an implementation that would include the worst possible design choices in terms of privacy and control. There are a number of ways a digital currency backed by the Fed could be designed, but the bill would prevent even those from being implemented without congressional authority.”
This isn’t the first time Senator Cruz has introduced similar legislation. In both March 2022 and March 2023, he floated a bill to block the Federal Reserve from launching a “direct-to-consumer” CBDC. Cruz said at the time of the second bill that a retail CBDC “could be used as a financial surveillance tool by the federal government.” Neither of those efforts went anywhere in Congress.
“We’ve anticipated that a CBDC in the United States will be a challenging task to bring to fruition due to Congress and/or the Senate,” said Hugentobler. “While the Digital Dollar Project and similar U.S.-led research projects have made progress, the U.S. will likely be one of the last countries to adopt a CBDC due to the checks & balances system we have here.”
