The House Financial Services Committee could vote on legislation calling for the Federal Reserve to move quickly to issue a digital dollar as soon as next month, according to a report in The Wall Street Journal.
House Financial Services Committee Chair Maxine Waters (D-Calif.) said in late May that a digital dollar would ensure that the benefits from the dollar’s preeminent global role would remain even as other countries, including China, introduce their own CBDCs.
“CBDCs have the potential to harness the efficiencies of cryptocurrencies while providing the security and stability of the U.S. dollar, backed by the full faith and credit of the federal government,” she said.
The Biden administration has taken a slower approach to the possibility. In March, the White House directed several federal agencies to research the pros and cons of a digital dollar. The Fed announced in January that it will not issue a CBDC “without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.”
Though the Fed has taken a neutral stance on the issue, Minneapolis Fed President Neel Kashkari criticized the idea Aug. 3 during a Q&A session at the 2022 Journal of Financial Regulation Conference in New York City.
“I can see why China would do it,” Kashkari was quoted as saying in an American Banker article. “If they want to monitor every one of your transactions, you could do that with a central bank digital currency. You can’t do that with Venmo. If you want to impose negative interest rates, you could do that with a central bank digital currency. You can’t do that with Venmo. And if you want to directly tax customer accounts, you could do that with a central bank digital currency. You can’t do that with Venmo. I get why China would be interested. Why would the American people be for that?”
Banking trade organizations have also pushed back on the idea, saying a CBDC would cause a massive cash shift from private banks to the Fed and place community banks at a competitive disadvantage. According to the Independent Community Bankers of America, a CBDC would “obstruct the ability of banks to take deposits and make loans, pose privacy and cybersecurity risks, provide a gateway to direct-to-consumer Fed accounts, and damage the Fed’s ability to conduct monetary policy.”
The American Bankers Association penned a letter in May to both Waters and Financial Services Committee Ranking Member Patrick McHenry (R-N.C.), stating that a CDBC “would fundamentally rewire our banking and financial system by changing the relationship between citizens and the Federal Reserve.”
A CBDC would likely not support the role of the U.S. dollar internationally, according to the ABA. “The purported benefits of a CBDC are uncertain and unlikely to be realized, while the costs are real and acute,” the ABA wrote. “Based on this analysis, we do not see a compelling case for a CBDC in the United States today.”