Cruz supports a bill that would steer the United States away from “an insidious China-like path.”
Texas Senator Ted Cruz introduced legislation in the US Senate on Wednesday, accompanying Minnesota Representative Tom Emmer’s bill that prohibits the Federal Reserve from issuing a central bank digital currency, or CBDC, directly to individuals. Emmer introduced the bill on January 18. Legislation by fellow Republican Cruz could speed the bill’s passage or rejection by allowing it to consideration in both houses of Congress at the same time.
Emmer, the co-chair of the Congressional Blockchain Caucus, motivated his bill by concerns that a retail CBDC that forced consumers to open accounts at the Federal Reserve Bank could “be used as a surveillance tool that Americans should never tolerate from their own government,” according to the legislator.
Emmer had said in January that, “Requiring users to open an account with the Fed to access a US CBDC would set the Fed on an insidious path akin to China’s digital authoritarianism.” He also said that centralizing consumers’ financial information would create security problems.
Meanwhile, Cruz’s bill follows Monday’s Democratic proposal in the House of Representatives to create an electronic version of the dollar not based on Blockchain technology presumably issued by the Treasury Department instead of the Fed. This electronic currency would have its bases on devices instead of accounts.
The Fed Issue
The Fed has no authorization to open accounts for individuals. In January, it published an analytical paper on CBDCs that extensively discussed disclosure issues, noting the need to balance individual privacy with the transparency needed to deter criminal activity. The document concluded that the most appropriate form of CBDC in the United States would be intermediation, that is, “the private sector would offer digital accounts or wallets to facilitate the management of CBDC holdings and payments.”
Brokering would make it possible to create a CBDC without changing the authorities of the Fed. It would also hand over the responsibility of identity verification, another essential quality of the CBDC specified in the document, to a private-sector financial service provider. The Fed document states that, “the Federal Reserve does not intend to proceed with the issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorization act.”
Some Final Considerations
Although creating a CBDC that Americans could access through the Fed could offer new convenience and efficiency, especially when it comes to paying taxes or receiving stimulus payments, some lawmakers have raised concerns that those benefits are outweighed by the threats to privacy that such a system would pose.
Meanwhile, offering CBDC directly to consumers could lead to a situation where Americans transfer their deposits to the Fed, leaving commercial banks without capital to lend, a scenario that the powerful banking lobby would strongly oppose.
While Emmer takes a hard line on CBDCs for consumers, he is not opposed to cryptocurrency in general. In December, he became one of the few lawmakers to tweet the crypto-friendly “gm” salute, a move that underscores how Republicans have generally been friendlier to crypto than Democrats have. Ted Cruz’s support of this line of thought will certainly spark the interest of Congress to discuss the bill.
By Audy Castaneda
