On May 23, the United States House of Representatives passed the CBDC Anti-Surveillance State Act with a vote that reflected stark partisan lines.

The legislation, which is now slated for a Senate vote, seeks to amend the Federal Reserve Act of 1913. It aims to prevent Federal Reserve banks from offering specific direct services to individuals and restricts the use of central bank digital currency (CBDC) in monetary policy among other objectives.

Debate in the House Regarding CBDC

The discussion in the House, which was marked by sparse attendance, saw Republicans cautioning against the potential misuse of a CBDC, portraying it as a surveillance tool similar to developments seen in China.

Democrats, on the other hand, defended the innovation potential of CBDCs, emphasizing the need to maintain the international competitiveness of the U.S. dollar and critiquing the bill for its vague language. Despite these differences, the bill was passed with the support of 213 Republicans and three Democrats, whereas 192 Democrats opposed it.

French Hill, Chairman of the Financial Services Committee Subcommittee on Digital Assets, Financial Technology, and Inclusion, expressed concerns about government abuse of its tools. Representative Mike Flood urged the audience to consider the implications of a disliked politician controlling a CBDC.

Warren Davidson, a Financial Services Committee member, compared the New York Fed’s Project Hamilton to China’s digital yuan, describing it as a “creepy surveillance tool” that could be further developed. He emphasized the need for the Fed to respond to legal constraints rather than dialogue. This sentiment was echoed by Rep. Alexander Mooney, who authored an amendment to restrict CBDC research, arguing that a CBDC should not be readily available.

The debate also featured dramatic references to the digital yuan and instances like the freezing of bank accounts in Canada during protests by truck drivers against COVID-19 vaccination mandates. Davidson invoked George Orwell’s “1984,” the New Testament’s Book of Revelations, and even the Deathstar from Star Wars to underline his points. Meanwhile, Marjorie Taylor Greene criticized what she termed the “deep state” and the Democratic leadership.

Contentious Implications of the Bill 

The bill’s exact implications were a point of contention. Brad Sherman criticized the bill as a “word salad” favoring “crypto bros” and noted that no one would be required to use a CBDC. While Republicans focused on a retail CBDC, Maxine Waters, the ranking member of the Financial Services Committee, argued that the bill could potentially ban a wholesale CBDC, risking the primacy of the U.S. dollar globally.

Source: congress.gov

Waters also mentioned that the bill could be interpreted to prohibit Federal Reserve holdings of bank reserves, essential for administering payment systems, and suggested that zero-knowledge proof technology could ensure user privacy.

She warned that while dollar-pegged stablecoins could lose value in a run, a CBDC would not. Jake Auchincloss, another committee member, proposed an alternative through his “Power of the Mint Act,” which he claimed would achieve similar objectives without the current bill’s drawbacks. However, his proposal was blocked by Republicans.

The CBDC Anti-Surveillance State Act, introduced by Rep. Tom Emmer in February 2023, passed the House by a vote of 216-192. This outcome contrasts sharply with a vote the previous day, when 71 Democrats joined 208 Republicans to pass the Financial Innovation and Technology for the 21st Century Act (FIT21), a crypto market structure bill.

This legislation would grant the U.S. Commodity Futures Trading Commission greater authority over digital assets and define the Securities and Exchange Commission’s approach to the sector. Industry participants celebrated this vote, marking it as a significant recognition of the crypto industry’s importance. 

Industry Reactions

Kristin Smith, head of the Blockchain Association, an industry lobby group, described the passage of the Financial Innovation and Technology for the 21st Century Act as a “watershed moment” and a badge of Congressional validation for the crypto industry.

Nicole Valentine, the director of FinTech at the Milken Institute, also welcomed the passage as a positive step. Nevertheless, both the market structure bill and the anti-CBDC bill face uncertain futures in the Senate, reflecting the divided legislative landscape and the absence of complementary bills in the upper chamber.

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