No US Federal Bank Should Issue Digital Currency Directly to Citizens: Republican Senators

Sen. Ted Cruz (R-Texas) at a Senate hearing on Capitol Hill in Washington, on March 23, 2021. (Greg Nash/Pool/AFP via Getty Images)

Three Republican senators are pushing forward legislation that seeks to ban the U.S. Federal Reserve from issuing a central bank digital currency (CBDC) directly to individuals as it could be used as a financial surveillance tool.

The bill aims to amend section 13 of the Federal Reserve Act by adding the following—“No Federal reserve bank may offer products or services directly to an individual, maintain an account on behalf of an individual, or issue a central bank digital currency directly to an individual.” The bill was introduced by Senator Ted Cruz (R-Tex.) and sponsored by Senators Chuck Grassley (R-Iowa) and Mike Braun (R-Ind.).

As countries like China develop CBDCs that do away with the privacy benefits of cash, it is “more important than ever” to make sure that America’s digital currency policy protects financial privacy, cultivates innovation, and maintains the dominance of the U.S. dollar, the three GOP senators said in a March 31 news release.

Failure to do so might empower an entity like the Fed to “mobilize itself into a retail bank,” allowing the agency to collect personal information of users and track their transactions. The U.S. Fed “does not” and “should not” have the authority to offer retail bank accounts, they warned.

Unlike cryptos like Bitcoin, CBDCs are issued and backed by the government. Transactions are conducted on a “centralized, permissioned blockchain.” This model will allow for the centralization of financial information of U.S. citizens. Not only can it pave the way for direct financial surveillance of American citizens, but the personal info will also be vulnerable to attack from third parties.

The bill will make sure that Congress “stands in the way” of government officials “snooping” on the financial activities of “hardworking Americans,” Grassley stated.

“The federal government has the ability to encourage and nurture innovation in the cryptocurrency space, or to completely devastate it,” Cruz said in a press release.

“This bill goes a long way in making sure big government doesn’t attempt to centralize and control cryptocurrency so that it can continue to thrive and prosper in the United States. We should be empowering entrepreneurs, enabling innovation, and increasing individual freedom—not stifling it.”

The proposed legislation follows President Joe Biden signing an executive order last month that requires the government to look into the benefits and risks of developing a central bank digital dollar.

The order “encourages the Federal Reserve to continue its research, development, and assessment efforts for a U.S. CBDC, including development of a plan for broader U.S. Government action in support of their work,” says a March 9 White House Fact Sheet.

Some states are considering making cryptos legal tender. In California, two bills, Senate Bill 1275 and Assembly Bill 2689, were introduced in February seeking to make cryptos acceptable as a form of payment for state agencies and private entities.