Earlier today the US Federal Reserve announced a discussion paper seeking feedback on the possibility of a digital dollar. Central bank digital currencies, or CBDCs, are being reviewed by central banks around the world as policymakers aim to uncover if digital currency issued by governments will replace physical currency.
In the Feds consultation, the authors outline both pros and cons of CBDCs while positing that another option could be privately issued stablecoins.
Comments from the public are being accepted until May of this year.
Congressman Patrick McHenry, the ranking member on the House Financial Services Committee and longtime Fintech supporter, issued a statement following the statement by the Fed. McHenry stated:
“In order for the U.S. payments system to remain the best in the world, private sector innovation must lead the way. This is top-of-mind as Congress evaluates the implications of pursuing a U.S. central bank digital currency. The Federal Reserve’s white paper is an important first step in an ongoing process to consider both the potential costs and benefits of issuing a U.S. CBDC.”
“Despite calls for the Fed to accelerate its progress, I share Chair Powell’s view. It’s more important we get this right than to be first. This means policymakers must closely examine the impact a CBDC will have on private-sector competition and innovation while addressing privacy, civil liberties, and security concerns. I am pleased the report reaffirms the Fed will not move forward on a CBDC without express authority from Congress. I look forward to working with my colleagues to ensure our financial system, including the role of the Fed, continues to support our economic and global competitiveness.”
Late last year, McHenry along with his Republican colleagues on the Committee, released a series of principles designed to guide Congress’s actions pertaining to CBDCs. McHenry re-iterated these principles, reposted below.
Address Inefficiencies in the U.S. Payment System
- Any consideration of a central bank digital currency should be done with the dual goal of maintaining 1) the U.S. dollar as the world’s reserve currency and 2) the global preeminence of the U.S. payment system, including how a digital currency might remove inefficiencies in both U.S. and cross-border payments.
- Stablecoins hold promise as a potential cornerstone of a modern payment system, if issued under a clear regulatory framework.
- If Congress contemplates authorizing the use of a Fed-issued digital currency, it should not impede the development and utilization of stablecoins, both those currently in circulation and those yet to be developed.
Private Sector Must Lead the Way
- Digital currency policies must promote private sector innovation and foster competition to ensure the United States maintains the world’s leading payment system. Congress and regulators should recognize the unique nature of these innovations and establish a regulatory framework that targets the activity and not the technology.
- Overly burdensome policies will diminish the potential gains to our financial system and put the U.S. at a disadvantage among our international competitors and allies alike.
Ensure Privacy and Security
- The Federal Reserve cannot issue a digital currency without Congressional authority. If Congress contemplates authorizing the use of a Fed-issued digital currency, privacy and civil liberties protections must be evaluated in a manner consistent with currency transactions utilized today, and security protections must be addressed.