Federal Reserve Chair Jerome Powell spent this week testifying before Congress. Unsurprisingly, comments focused on interest rates, inflation, and the risks of a future downturn. Yet one question from Representative French Hill (R‑AR) deserves more attention for it revealed a troubling trend in the Federal Reserve’s position on central bank digital currencies (CBDCs).

When asked by Representative Hill if congressional authority is needed for the Federal Reserve to issue a CBDC, Chair Powell responded that the Federal Reserve would need congressional authority to issue a retail CBDC, but he was careful to note that it is a different story when it comes to other forms of CBDCs.

For those that might not remember, the Federal Reserve built its entire proposal for CBDCs on the idea of a CBDC being “intermediated.” In other words, instead of establishing accounts for every American to issue a CBDC, the Federal Reserve would task banks with maintaining those accounts. Now, to be clear, intermediated CBDCs are just retail CBDCs with extra steps. But even then, when it comes to the question of legal authorities, these distinctions are important.

Vague and carefully hedged statements should not be confused for clear or binding guidance.

To make matters worse, Chair Powell is building on a trend that goes beyond the typical “Fed speak.” Last year, former‐​Vice Chair Lael Brainard appeared before the House Committee on Financial Services to testify on CBDCs. After dodging numerous questions and failing to answer if the Federal Reserve could proceed without congressional authority, the Committee followed up in writing to demand answers.

Now, a new Freedom of Information Act (FOIA) request has revealed Brainard never really answered the question. Rather than take the opportunity to provide more substantive information, Brainard simply repeated the Federal Reserve’s official stance:

The Board’s January discussion paper notes only that, “The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law.” (Emphasis added.)

This position should be a red flag for Congress. Luckily, many members are taking notice. Last year, Representative Tom Emmer (R‑MN), Senator Mike Lee (R‑UT), and Senator Ted Cruz (R‑TX) all introduced separate pieces of legislation to push back at the rise of CBDCs. In fact, Representative Emmer reintroduced an updated version of his legislation just last week and will be speaking at Cato tomorrow for a public event on CBDCs.

Yet until laws are changed, there really is no binding commitment of any kind, and members of Congress should not mistake the Federal Reserve’s stance for something it’s not. Chair Powell certainly provided an answer today, but that answer left open many questions.

If you’d like to learn more, come join us at the Cato Institute in D.C. or online for our event on March 9^th at 1 PM EST: Exploring the Risks of Central Bank Digital Currencies.