Defence Policy Bill Amendment Bars Federal Reserve from Issuing CBDCs, Strengthening Privacy
On Thursday, the 21st of August, House Republicans introduced a novel provision to the defense policy bill H.R. 3838. This amendment is designed to prevent the US Government from issuing a Central Bank Digital Currency (CBDC) onto private individuals. Experts in the field have suggested that such a barricade could be an essential safeguard for the future of financial privacy.
Safeguarding the Financial Privacy of Individuals
The provision primarily focuses on the inabilities of the Federal Reserve, outlining that it cannot provide direct financial services to the public, hold accounts for them, or create anything that resembles a CBDC. Additionally, it emphasizes that the Federal Reserve cannot bypass these rules by using banks or other intermediaries to issue a CBDC.
Exception to the Prohibition
However, a significant exception lies within these guidelines, stating that these prohibitions won’t impact any dollar-denominated currency that embodies the traits of being open, permissionless, and private. Moreover, it should uphold the privacy protections in place for US physical currency and coins. This suggests that while it does put stringent guidelines on standard CBDCs, it does not completely remove the possibility of digital finance, provided it aligns with these criteria.
Implications for the Future of Digital Currency
Experts suggest that these new restrictions represent a growing apprehension related to privacy, surveillance, and the role of the government within the sector of digital currency. Nanak Nihal Khalsa, a co-founder at Humantech, spotlighted the potential dangers associated with state-controlled digital money. He outlined CBDCs as being akin to programmed money underneath state regulation, potentially recording every available transaction on a government-run ledger. His concern resides in whether the development of money becomes an infrastructure for surveillance or remains in service of the people.
Anti-CBDC Surveillance State Act
Earlier this summer, the House of Representatives gave its approval for the Anti-CBDC Surveillance State Act. This act similarly restricts the federal government from creating a CBDC that may apply in monetary policy. Congressman Byron Donalds voiced his opinion around the decision by tweeting, “Central Bank Digital Currency (CBDC) would give unelected bureaucrats in our federal government absolute control over YOUR MONEY. This is wrong & this is a dangerous threat to freedom.”
Stance of the U.S Treasury Department
U.S. Treasury Secretary Scott Bessent has previously expressed a robust confrontation against the concept of a CBDC, categorizing such an idea as a mark of weakness. He also assured that he wouldn’t support the Federal Reserve in issuing a digital currency.
Government Integration in Stablecoins and Its Implications
Along with CBDCs, Humantech co-founder Khalsa warned about the similar risks stablecoins also face. These risks are often associated with private issuers who can monitor, restrict, and profit from user transactions. The underlying distinction lies in the entities we trust: the government or a private corporation. Furthermore, Khalsa stressed how these warnings are critical now, particularly when governments themselves are commencing the use of stablecoins. Wyoming recently launched the Frontier Stable Token (FRNT), a state-backed coin attached to the U.S. dollars and Treasury bonds. While many perceive this as a milestone for crypto acceptance, some critics argue that it blurs the boundary between decentralized money and government-issued digital cash.
The Possibility of a Federal CBDC
However, prerogatives such as Wyoming’s could potentially spur the growth of stablecoins. Yet, the alarming prospect resides in whether the Federal Reserve and government stakeholders view this as an opportunity to roll out their very own fully controlled coin. CTO at Komodo, Kadan Stadelmann, suggests that a federal CBDC would equate to surveillance on steroids – a situation characterized as the nightmare scenario.
On hind sight, various experts, such as Jack O’Holleran, co-founder and CEO of SKALE Labs have suggested that Wyoming’s launch could foster an even more bullish sentiment for stablecoins. It remains to be seen how the situation will unfold in the pervasive world of finance and digital currency.
