CBDC Anti-Surveillance State Act Passed in US House with Partisan Vote
The CBDC Anti-Surveillance State Act was approved by the United States House of Representatives on May 23, with a vote that clearly showed partisan divisions. This legislation, which will now move on to a Senate vote, aims to amend the Federal Reserve Act of 1913 in order to prevent Federal Reserve banks from offering specific services directly to individuals and to restrict the use of central bank digital currency (CBDC) in monetary policy, among other objectives.
During the House debate on the CBDC, attendance was low, but the discussion was marked by contrasting viewpoints. Republicans expressed concerns about the potential misuse of a CBDC, likening it to a surveillance tool similar to what is seen in China. On the other hand, Democrats defended the innovation potential of CBDCs and emphasized the need to maintain the international competitiveness of the U.S. dollar. They also critiqued the bill for its vague language. Despite these differences, the bill was passed with the support of 213 Republicans and three Democrats, while 192 Democrats opposed it.
Various representatives voiced their concerns during the debate. French Hill, Chairman of the Financial Services Committee Subcommittee on Digital Assets, Financial Technology, and Inclusion, expressed worries about potential government abuse of CBDCs. Representative Mike Flood urged the audience to consider the implications of a disliked politician having control over a CBDC. Warren Davidson, a member of the Financial Services Committee, compared the New York Fed’s Project Hamilton to China’s digital yuan, describing it as a “creepy surveillance tool” that could be further developed. He stressed the need for the Fed to respond to legal constraints rather than engage in dialogue. Representative Alexander Mooney, who proposed an amendment to restrict CBDC research, argued that a CBDC should not be readily available.
The debate also included dramatic references to the digital yuan and instances such as the freezing of bank accounts in Canada during protests by truck drivers against COVID-19 vaccination mandates. Davidson invoked George Orwell’s “1984,” the New Testament’s Book of Revelations, and even the Deathstar from Star Wars to emphasize his points. Meanwhile, Marjorie Taylor Greene criticized what she referred to as the “deep state” and the Democratic leadership.
The exact implications of the bill were a subject of contention. Brad Sherman criticized the bill as a “word salad” that favored “crypto bros” and pointed out that no one would be required to use a CBDC. While Republicans focused on a retail CBDC, Maxine Waters, the ranking member of the Financial Services Committee, argued that the bill could potentially ban a wholesale CBDC, which could risk the global primacy of the U.S. dollar. Waters also mentioned that the bill could be interpreted to prohibit Federal Reserve holdings of bank reserves, which are essential for administering payment systems. She suggested that zero-knowledge proof technology could ensure user privacy. Waters warned that while dollar-pegged stablecoins could lose value in a run, a CBDC would not. Jake Auchincloss, another committee member, proposed an alternative through his “Power of the Mint Act,” which he claimed would achieve similar objectives without the drawbacks of the current bill. However, his proposal was blocked by Republicans.
The CBDC Anti-Surveillance State Act, introduced by Rep. Tom Emmer in February 2023, passed the House with a vote of 216-192. This outcome sharply contrasts with the previous day’s vote, when 71 Democrats joined 208 Republicans to pass the Financial Innovation and Technology for the 21st Century Act (FIT21), a bill related to the crypto market structure. This legislation would give the U.S. Commodity Futures Trading Commission greater authority over digital assets and define the Securities and Exchange Commission’s approach to the sector. Industry participants celebrated this vote, seeing it as a significant recognition of the crypto industry’s importance.
Kristin Smith, head of the Blockchain Association, an industry lobby group, described the passage of the Financial Innovation and Technology for the 21st Century Act as a “watershed moment” and a validation of the crypto industry by Congress. Nicole Valentine, the director of FinTech at the Milken Institute, also welcomed the passage of the bill as a positive step. However, both the market structure bill and the anti-CBDC bill face uncertain futures in the Senate, reflecting the divided legislative landscape and the absence of complementary bills in the upper chamber.
