Fed Will Only Issue Digital Currency With Support From White House, Congress: Treasury Official

A file photo of U.S. dollars. Luis Robayo/AFP via Getty Images

The Federal Reserve will only issue a central bank digital currency (CBDC) with the support of the White House and Congress, says Nellie Liang, Under Secretary of Treasury for Domestic Finance.

Liang joined a discussion at the Atlantic Council’s GeoEconomics Center about the future of money and payments, including cryptocurrency, stablecoins, and CBDCs.

It has been one year since President Joe Biden signed an executive order encouraging the Federal Reserve to explore a CBDC and determine if researching and developing a digital dollar would be in the national interest. The United States has joined 100 other nations that have launched projects surrounding a digital version of a country’s currency.

The Treasury official acknowledged that CBDCs “present opportunities to build a more efficient, competitive, and inclusive payment system.” Policymakers are now deliberating if the U.S. should institute a digital dollar and what form it should take, requiring technological research and experimentation.

The paucity of adoption in several markets is a notable concern, too.

In Nigeria, for example, there has been a lack of usage of the digital naira. This forced the central bank to compose an 83-page “Nigeria Payments System Vision 2025” document that proposed a two-year roadmap to bolster its utilization rate. As of October 2022, only 0.5 percent of the country’s population (211.4 million) is using the eNaira.

In China, there has been concern among officials that not enough citizens are adopting the digital yuan, forcing municipal governments, including Tianjin, to dole out millions in the eYuan in a bid to bolster usage.

The Marriner S. Eccles Federal Reserve Board building in Washington on March 16, 2022. Saul Loeb/AFP via Getty Images

Whether or not there is significant demand in the United States remains to be seen, Liang said.

According to Liang, the experts are assessing three core features: legal tender, convertibility to other forms of central bank money and reserve balances, and the functionality to clear and settle nearly instantly. But support is the key criterion, she noted.

“The Fed has also emphasized that it would only issue a CBDC with the support of the executive branch and Congress and, more broadly, the public,” she said.

That said, the Fed’s efforts are considering broader administration objectives relating to global financial leadership, such as the international role of the greenback, national security, and economic and strategic benefits. Although the U.S. government employs financial weapons, like sanctions, to address national security threats and bad actors accessing the American financial system on the world stage, Liang affirmed that the fundamentals—access, privacy, inclusion, and innovation—are paramount.

“The way you get your dollar will matter, but I think, free markets, institutions, and the rule of law are all just more stronger, more fundamental factors,” asserted Liang, who previously served as the Senior Fellow in Economic Studies at the Brookings Institution.

The CBDC Controversy

CBDCs have become a subject of controversy, with House Republicans warning that the Biden administration could be producing an “authoritarian-style” and “surveillance-style” digital dollar.

House Republicans recently introduced the CBDC Anti-Surveillance State Act that would restrict the “unelected bureaucrats” from establishing and issuing a CBDC that they say would threaten the financial privacy of the American people.

“Any digital version of the dollar must uphold our American values of privacy, individual sovereignty and free market competitiveness,” said House Majority Whip Tom Emmer (R-Minn.) in a statement. “Anything less opens the door to the development of a dangerous surveillance tool.”

Rep. Warren Davidson (R-Ohio) argued that the Fed must concentrate on its dual mandate—price stability and maximum employment—instead of “eradicating financial autonomy.”

“A retail CBDC would essentially allow the government to mediate all transactions, which would mirror what we see in China. It’s vital to ensure this does not happen here,” Davidson said in a statement.

Meanwhile, academics will also be discussing the privacy values, security, and efficacy of CBDCs in the coming weeks.

The Digital Dollar Project (DDP) will host privacy-focused roundtables with leading post-secondary institutions, including UC Berkeley’s Center for Responsible, Decentralized Intelligence, the Georgetown University Law Center’s Institute of International Economic Law, and MIT Connection Science and Engineering.

“To fully explore the potential of a U.S. CBDC, it is imperative that we approach the conversation with an open mind and a willingness to consider new and innovative solutions. This includes re-evaluating current financial surveillance frameworks,” said Jennifer Lassiter, executive director of the Digital Dollar Project, in a statement.

“As the world becomes increasingly digital, privacy will become a global competitive edge for currency. Through discussions like these roundtables, we will explore potential frameworks that not only meet current privacy standards but attempt to enhance them for the future.”

Many major economies are currently undergoing CBDC projects, including the UK, Canada, Singapore, and Spain.