U.S. Senators Chuck Grassley (R-Iowa), Ted Cruz (R-Texas) and Mike Braun (R-Ind.) have introduced a bill to "prohibit the Federal Reserve" from issuing a digital dollar that could be sent straight to users.
The untitled bill, introduced by Cruz last Wednesday, would block the Federal Reserve from offering "products or services directly to an individual," maintaining accounts for individuals or issuing CBDCs to people.
This caught my eye because I’m not sure the Fed has any intention of doing so?
Fed officials – and its recently-published white paper on CBDCs – have long held that the U.S. central bank will not, and indeed perhaps can not issue a CBDC without further authorization from Congress.
Jerome Powell, the Fed’s chair, said as much in testimony before the House Finanical Services Committee earlier this year.
"The Federal Reserve does not intend to proceed with issuance of a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law," the white paper, published in January, said.
The White House has expressed interest in exploring a CBDC but stops well short of saying one must be created.
Still, efforts to have the U.S. issue a digital dollar continue. Last week, several lawmakers introduced a bill that would authorize the Treasury Department – not the Fed – to issue the CBDC.
The “Electronic Currency And Secure Hardware Act” proposes an electronic dollar that users could hold on smartcards or hardware wallets on their phones. The ecash bills would not be tracked on a decentralized ledger (or indeed, any ledger of any type), which its proponents argue will help preserve user privacy.
The press release issued by Cruz’s office cited concerns about privacy, saying, “Specifically, the legislation prohibits the Federal Reserve from developing a direct-to-consumer CBDC which could be used as a financial surveillance tool by the federal government, similar to what is currently happening in China.”
The ECASH Act would seem to address this concern by removing all possible opportunity for financial surveillance.
“It doesn't involve any account, which means that you can use it peer-to-peer directly. You can use it offline and because there's no third party, there's no loss of privacy expectation that comes with the third party doctrine,” Rohan Grey, who advised on the bill, told me.
Across the Atlantic, the EU is emphasizing privacy in its own CBDC discussions. European officials have yet to determine whether they want to issue a CBDC (so similar to the U.S.) but are saying smaller or less risky transactions should allow for more privacy.
What remains to be seen is just how such a system can be created on a technological level. The ecash bills would have to be irreproducible by anyone who isn’t authorized to issue such bills (so as to prevent money laundering and forgery), despite being entirely contained within localized hardware.
In other words, it would have to address the double-spend problem without the digital ledger that Bitcoin uses.
