“America can’t be left behind,” said Maxine Waters (D-CA), chairwoman of the House Financial Services Committee, opening a May 26 hearing on a US central bank digital currency.
The virtual hearing featured testimony from Lael Brainard, a longtime governor at the Federal Reserve who in April was confirmed as vice chair. Central to the hearing was a January Fed discussion paper on the outlook for an American CBDC.
Brainard’s testimony, like the discussion paper itself, was diplomatic, but fundamentally sought to give the Fed more license to explore a CBDC. She said:
“The rapid ongoing evolution of the digital financial system at the national and international levels should lead us to frame the question not as whether there is a need for a central-bank-issued digital dollar today, but rather whether there may be conditions in the future that may give rise to such a need.”
It’s a project that has increasingly become the subject of partisanship in Congress. Days ago, Senator Ted Cruz (R-TX) called a CBDC “a horrific idea.”
House Financial Services Committee Republicans wrote to Brainard last week, arguing that the Fed does not have the approval to move ahead with a CBDC in the absence of Congress’ go-ahead.
That topic came up repeatedly, with committee Republicans expressing broad dissatisfaction that Brainard would not fully disavow the Fed’s issuance of a CBDC absent new law.
“It is important for us to have strong support from both the executive branch and congress and ideally that would come in the form of authorizing legislation,” Brainard told the committee’s leading Republican, Patrick McHenry. McHenry identified that as Brainard leaving “wiggle room.”
Many of the earliest proponents of cryptocurrency in Congress have been Republicans. The crypto industry has been working to get Democrats on board over the past year and a half, lending increasing credence to claims from the crypto lobby that it is a nonpartisan policy area. A US CBDC, however, seems to have few defenders on the political right.
Republicans don’t believe the Fed can handle the demands of retail banking and are suspicious of its interest in surveilling or blocking transactions based on changes in the political winds.
“No one has made a compelling case on why we should expand the Fed’s mandate into retail banking or how a Fed-issued CBDC won’t politicize the Fed,” said McHenry.
Credit allocation is another area in which Republicans sought to defend commercial banks.
“If working people got paid in CBDC, could it threaten the ability of commercial banks using their deposits to fund lending activities?” Bill Posey (R-FL) asked Brainard.
As for the areas of criticism, the idea that Fed expanding its role into allocating credit has drawn fire from Republicans. Democrats are more suspicious of the commercial banking system that sits between citizens and the Fed. Today and elsewhere, they have proved willing to experiment with more direct lines between the Federal Reserve and the general public.
That specific degree of support includes proposals for FedAccounts that initially appeared in 2020, as well as moves to expand the role of the US Postal Service in payments and accounts, which Rep. Ayanna Pressley (D-MA) praised during today’s hearing.
Rep. Bill Foster (D-IL) pointed to the potential for a CBDC to cut out the significant fees that credit card companies charge merchants. “I don’t have an estimate right now but I know that transaction fees are very high,” said Brainard.
However, Brainard said that there would still be intermediaries.
“You don’t support direct consumer accounts with the Fed?” asked French Hill (R-AR). Brainard answered, “Yes, I think statute is clear on that.”
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