Republicans on the House Financial Services Committee, led by Patrick McHenry, wrote to Federal Reserve board vice chair Lael Brainard, to clarify the regulator’s stance on a central bank digital currency (CBDC).
On the back of the approaching deadline of President Biden’s Executive Order on Ensuring Responsible Development of Digital Assets focusing on a U.S. CBDC, the letter stated, “Most importantly, Committee members raised questions regarding the Fed’s current authority under the Federal Reserve Act to issue a CBDC.”
Fed’s stance on a CBDC
Notably, in April 2022, the US Federal Reserve officially declared that it was exploring a central bank digital currency. However, the letter follows Brainard’s testimony before a House Committee back in May on their benefits and risks.
During her testimony, Brainard stated that a U.S. CBDC may one day coexist with stablecoins while criticizing the notion that stablecoins don’t share the same protections as commercial bank money, stating that these types of protections “could reintroduce meaningful counterparty risk into the payments system.”
The members ask, “Is the Fed’s objective with a U.S. CBDC to curtail the use of digital assets and other private sector innovative payment methods? If not, please provide the context for your testimony.”
With that, the Republican leaders broadly raise questions around the motivation for the Fed to issue a digital dollar, the need for Congressional support for a Fed-issued CBDC, the Fed’s position on individual retail accounts, the need for Congress to authorize an intermediated model and the need for strong support from the Executive Branch. They further questioned her, based on the Federal Reserve Act, if the Federal Reserve can create an intermediary CBDC model without express Congressional consent.
Powell compared China’s e-CNY launch to the US
Some time back, Fed Chair Jerome Powell had agreed that “A U.S. CBDC could potentially help maintain the dollar’s international standing.”
When asked about a digital currency in a recent interview, Powell said, comparing to China’s e-CNY or digital RMB launch, “We would not desire a world in which the government sees every money transfer that anyone makes with the CBDC in real-time. That would not be anything that would be attractive in the American context.”
As per the Atlantic Council, 11 countries have launched a centrally-backed digital currency with 14 countries in the pilot stage at the time of press.
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