‘Dangerous Surveillance’: Republican Lawmaker Wants to Ban Federal Reserve From Issuing Digital Currency

Federal Reserve Board Chairman Jerome Powell takes questions during a news conference at the Federal Reserve Board Building in Washington, on Nov. 2, 2022. Mandel Ngan/AFP via Getty Images

House Majority Whip Tom Emmer (R-Minn.) has introduced legislation that seeks to prevent the Federal Reserve from issuing a central bank digital currency (CBDC), while insisting that a digital equivalent to the dollar must uphold privacy and sovereignty.

The “CBDC Anti-Surveillance State Act” prohibits the Federal Reserve from issuing a CBDC directly to an individual. “The Board of Governors of the Federal Reserve System and the Federal Open Market Committee may not use any central bank digital currency to implement monetary policy,” the bill states. It also requires that the Fed’s CBDC projects be transparent to lawmakers and the American people by insisting that quarterly reports on such initiatives be submitted to Congress.

“Any digital version of the dollar must uphold our American values of privacy, individual sovereignty, and free market competitiveness. Anything less opens the door to the development of a dangerous surveillance tool,” Emmer stated in a tweet on Feb. 22.

“After all, America remains a technological leader not because we force innovations to adopt our values under regulatory duress but because we allow technology that holds these values at their core to flourish.”

Rep. Ralph Norman (R-S.C.) extended his support for the bill, saying that he is “proud to co-sponsor” the CBDC Anti-Surveillance State Act.

“On the awful idea for central bank digital currency: We have enough problems with abusive government surveillance. The Fed should NOT have means to monitor individual account holders or their transactions,” he said in a tweet on Feb. 22.

Dangers of Fed CBDC

In a tweet on Feb. 22, Tushar Jain, co-founder of investment firm Multicoin Capital, pointed to the dangers of allowing the Federal Reserve to issue a digital currency.

“A negative externality of a U.S. CBDC is the destruction of credit markets. Why would you keep cash at a commercial bank when you can keep it at the Fed? But the Fed doesn’t make commercial loans,” he says.

For one, depositing cash with the Fed is “safer” than keeping it with a commercial bank. Second, the Fed already pays a higher yield on bank deposits than what the commercial banks offer. Considering these two points, holding a deposit with the Fed rather than a commercial bank would seem like the most profitable choice for customers.

However, “if commercial banks lose a significant portion of their deposit base to a CBDC, that would be catastrophic for credit markets,” Jain warns.

Investigative journalist Nick Corbishley points to the example of Nigeria to explain how a central bank digital currency could negatively affect a nation’s economy.

Since 2021, 99.5 percent of Nigerians have refused to use the central bank’s e-Naira digital currency, while continuing to use cash, he noted. In December, the bank replaced all high-denomination cash bills in the economy to make it difficult for Nigerians to use cash.

“As I’ve been warning for last two months, Nigeria’s already weakened economy is in no position to absorb the resulting economic shock. The central bank is not printing nearly enough cash to replenish the money supply. The result is a massive cash shortage,” Corbishley said, according to a Feb. 16th tweet.

Central Bank’s Take on Digital Dollar

During an event in September, Federal Reserve Chairman Jerome Powell had stated that any CBDC pushed by the central bank would have four minimum characteristics.

The first would be that it will not be based on a peer-to-peer distribution network like Bitcoin and would instead have intermediaries. The Fed CBDC will also have privacy protections, identity verification, and will be “transferable or interoperable.”

“We would be looking to balance privacy protection with identity verification, which has to be done, of course, in today’s traditional banking system as well,” Powell said. However, it will never be “anonymous.”

In November 2022, the Federal Reserve Bank of New York announced that it was teaming up with major financial institutions like Wells Fargo, Mastercard, Citigroup, and HSBC Holdings for a 12-week digital dollar pilot program.

The New York Fed wanted to review how banks would process digital dollar tokens within the central bank system as well as assess their impact.