The case against central bank digital currencies (CBDCs) grows stronger by the day. Coming just a few weeks after Representative Tom Emmer (R‑MN) introduced a similar bill in the House, Senator Mike Lee (R‑UT) introduced the No Central Bank Digital Currency Act, or No CBDC Act.
CBDCs put the future of financial privacy, freedom, and markets at risk, and these bills would provide much-needed safeguards against the United States issuing a CBDC. Senator Lee’s bill, for example, would establish clear boundaries for not just the Federal Reserve (Fed), but also the Department of the Treasury (Treasury). Time and time again, Fed Chair Jerome Powell and former-Vice Chair Lael Brainard have skirted questions on the Fed’s authority to issue a CBDC. Likewise, the Treasury seems to have taken the lead on pushing CBDCs forward under the Biden administration. Considering these developments, it’s clear that Senator Lee’s approach is indeed warranted.
Similar to the bill introduced by Representative Emmer, Senator Lee’s bill would prohibit the Fed from issuing a retail CBDC without congressional approval. However, Senator Lee’s bill would also explicitly prohibit the Fed from issuing an intermediated CBDC—an idea that has received growing interest since the Fed released its initial CBDC discussion paper. In fact, the bill even sets the groundwork for taking wholesale CBDCs off the table as well.
For those that might not be familiar with these rather technical distinctions, a retail CBDC would be a CBDC offered directly by the Federal Reserve to individuals. Given that this idea would be such a radical departure from the current financial system, the Fed announced that it would prefer an intermediated CBDC as a sort of middle-ground or compromise. In short, an intermediated CBDC would involve the Fed enlisting commercial banks to maintain the digital wallets and accounts used by individuals holding CBDCs. A wholesale CBDC would just be removed one step further in that it would only be available for financial institutions to use amongst each other for interbank settlement.
Not leaving anything to chance, both Senator Lee’s and Representative Emmer’s bills would also prohibit the Fed from using a CBDC from being used to conduct monetary policy as described in Section 2A of the Federal Reserve Act. In practice, this check means that a CBDC could not be used for negative interest rate charges, stimulus payments, or other attempts to “fine-tune” the rates of inflation and unemployment.
Yet, Senator Lee’s bill wouldn’t just establish checks on the Fed. The bill also identifies the possibility that that the Treasury could use its authority to issue a CBDC and, therefore, applies the same checks on the Treasury. As Norbert Michel and I identified in a working paper last year, the focus has long been on the Fed, but the Treasury is just as important to consider in the CBDC conversation. For example, last September, undersecretary Nellie Liang announced at the Brookings Institution that the Treasury would be leading a CBDC working group to “promote further work on advancing a CBDC.”
These bills would establish some much-needed checks on the federal government’s efforts to launch a CBDC. The potential consequences of a CBDC are simply too large to be left up to the discretion of unelected bureaucrats at the Fed or the Treasury. It’s a decision that should rest with Congress.
Are you interested in learning more about the risks posed by CBDCs? Check out our new webpage dedicated to explaining what CBDCs are, why they shouldn’t be adopted, and who is speaking out against them.
