Fed Chair Powell Says Americans ‘Don’t Need to Worry About a Central Bank Digital Currency’

Republican-led pushback to a digital dollar intensifies.

Federal Reserve Chair Jerome Powell speaks during a news conference about the Federal Reserve's monetary policy at the Federal Reserve in Washington, on Jan. 31, 2024. Alex Brandon/AP Photo

The American people do not need to be concerned about the creation of a central bank digital currency (CBDC), Federal Reserve Chair Jerome Powell said during his second round of testimony on Capitol Hill.

CBDCs have garnered more attention in Washington, with Republican senators backing legislation to ban the creation of Fed-supported digital currencies.

Despite concerns surrounding establishing or adopting a digital dollar, Mr. Powell assured the Senate Banking Committee that the central bank is far from recommending or installing a CBDC “in any form.”

The Fed chief identified the risk of the federal government potentially seeing all of the public’s transactions, comparable to how the digital yuan functions in China. He added that the Fed would not want to manage any individual accounts for Americans.

“That’s just something we would not stand for or propose here in the United States,” Mr. Powell stated. “That is how it works in China, for example, but that’s not what we'll see if we were ever to do something like this.”

Mr. Powell noted that it is a matter of following technology as it evolves and producing a concept that better serves the public.

“People don’t need to worry about a central bank digital currency,” he said. “Nothing like that is remotely close to happening.”

In March 2022, President Joe Biden signed an executive order directing the federal government to assess what is necessary for a potential CBDC “that protects Americans’ interests.”

Over the past year, the Fed has published several papers studying and exploring a hypothetical CBDC backed and controlled by the central bank. Other federal entities, including the Treasury Department, have also examined the effects of a digitized greenback.

Officials have repeatedly highlighted that they are not as far as other central banks and governments in experimenting or installing a digital currency. They have also noted that issuing a central bank digital currency is dependent on congressional legislation authorizing its use.

But while the Fed is still in the infancy stage of developing a digital dollar, there has been pushback in the nation’s capital.

More Republicans Want to Ban CBDCs

Last month, Sen. Ted Cruz (R-Texas) and a group of GOP senators submitted legislation to stop the current administration from issuing a CBDC.

In addition to outright restricting the creation of CBDC, the bill would bar the Fed from becoming a retail bank and using digitized money to conduct monetary policy and control the economy. It further mandates authorizing legislation from Congress for the issuance of a CBDC.

Republican senators warn that government-controlled programmable currency could “choke out politically unpopular activity.”

“The Biden administration salivates at the thought of infringing on our freedom and intruding on the privacy of citizens to surveil their personal spending habits, which is why Congress must clarify that the Federal Reserve has no authority to implement a CBDC,” Mr. Cruz said in a statement. “I’m proud to lead the fight in the Senate to restrict the Federal Reserve’s exploration of and attempt to introduce a CBDC to the American economy.”

This past fall, House Majority Whip Tom Emmer (R-Minn) refiled the Central Bank Digital Currency Anti-Surveillance Act, which prohibits the central bank and member banks from issuing a digital dollar and implementing it into their monetary policymaking efforts.

An employee counts US dollar currency as a customer pays cash for an Apple iPhone 15 series phone for sale at The Grove Apple retail store on release day in Los Angeles, Calif., on Sept. 22, 2023. Patrick T. Fallon /AFP via Getty Images

In January, former President Donald Trump vowed to “never allow” the Fed to put together a CBDC, calling it a “dangerous threat to freedom.”

“As your president, I will never allow the creation of a central bank digital currency. Such a currency would give the federal government absolute control of your money,” former President Trump said at a campaign event in New Hampshire. “This would be a dangerous threat to freedom—and I will stop it from coming to America.”

Other White House hopefuls have lamented the idea of a government-backed virtual currency.

Robert F. Kennedy Jr., for example, posted a one-minute video on his X account discussing the threats CBDCs pose to the nation’s freedom.

“It is a calamity for human rights and for civil rights,” the presidential candidate said in January.

At the state level, governors have approved efforts to ban CBDCs issued by the federal government.

Last year, Florida Republican Gov. Ron DeSantis signed a bill that prevents using digital currency in Florida, arguing that the White House wants to employ a CBDC for “surveillance and control.”

Several other jurisdictions, including South Carolina, Tennessee, and Utah, have seen legislative initiatives to exclude CBDC from the definition of money. These efforts, experts say, could be significant hurdles for the pro-CBDC crowd in the United States to overcome.

The State of CBDC

According to the Atlantic Council’s tracking tool, more than 100 countries are exploring CBDCs today. Nearly a dozen markets have launched CBDCs, with 21 in the pilot phase.

One of the latest territories to reveal a new wholesale CBDC project is Hong Kong. The central bank announced it plans to “seek to explore innovative financial market infrastructure (FMI) that will facilitate seamless interbank settlement of tokenized money.”

China has been a leader in this space over the past couple of years, triggering Western governments to accelerate their CBDC efforts to compete with the world’s second-largest economy. Opponents say that the digital yuan diminishes consumer privacy. A 2023 Chainanalysis study explained that Beijing could integrate financial data produced by the digital yuan with other data to insert it into the country’s controversial social credit system.