Senator Ted Cruz of Texas has reintroduced a bill prohibiting the Federal Reserve from developing a central bank digital currency (CBDC) in the United States. The Ranking Member of the Senate Committee on Commerce, Science, and Transportation says a dollar-based cryptocurrency issued by the central bank could be used as a “financial surveillance” tool to spy on American citizens.
Texas Senator Ted Cruz Proposes Bill To Ban U.S. CBDC
In a statement released on Tuesday, the Senator noted that when creating a CBDC it is more important to ensure that the federal government sets policies that protect the financial privacy of users, maintain the U.S. dollar’s dominance as the world’s reserve currency, and encourage innovation in the financial sector.
He warned that any failure by the Biden administration to adhere to the three basic principles when issuing a digital dollar would lead to the Federal Reserve misusing its power. The Fed could turn itself into a retail bank, gaining access to users’ personally identifiable information, and tracking their financial transactions. The Texas senator said that the Fed “does not, and should not” have the ability to offer retail banking services to Americans.
Central bank-issued digital currencies (CBDCs) are similar to stablecoins in the way they are crypto tokens denominated in sovereign fiat currencies. But unlike fiat-backed cryptocurrencies which are minted by a private company on a decentralized and public blockchain like Ethereum, CBDCs are issued and controlled by central banks on a centralized and permissioned blockchain.
Ted Cruz is concerned that a U.S. CBDC would centralize the personal and financial information of Americans, leaving it vulnerable to external threats and could also be used as an authoritarian-style surveillance tool by the federal government to snoop into the private transactions of users.
In March 2022, President Joe Biden signed an executive order asking the Federal Reserve and the Treasury Department to research the possibility of a U.S. CBDC.
Last November, the Federal Reserve Bank of New York partnered with global financial firms and service providers, including Citigroup, HSBC, Wells Fargo, Mastercard, and SWIFT, to launch a 12-week digital dollar pilot program.
At the time, the New York Fed said the pilot was being conducted in a regulated test environment using simulated data to determine the feasibility of using blockchain-based digital currencies for settling transactions at faster speeds and cheaper rates.
The New York Fed’s innovation centre has also been working with the Monetary Authority of Singapore to test how cross-border transactions can be conducted using CBDCs.
At a congressional hearing earlier this month, Federal Reserve Chairman Jerome Powell said lawmakers would eventually need to authorize a retail CBDC. However, the Fed chair had concerns about using CBDCs in the country’s wholesale segment for transaction settlements between the central bank and financial institutions. Powell also noted that the Fed was not in the stage of making any concrete decisions on CBDCs as it is still in the early stages of experimenting with the technology.
After introducing the bill backed by Republican Senators Mike Braun of Indiana and Chuck Grassley of Iowa, Cruz said that the federal government has no authority to “unilaterally” establish a digital currency.
He added that the bill goes a long way to ensure that the big government does not attempt to centralize the financial system or control cryptocurrency, instead allowing the technology to thrive in the United States.
The group introduced a similar bill in March 2022, which failed to move beyond the introductory phase.
Senator Braun said he supports the legislation because it allows entrepreneurship to prosper in the country while keeping the federal government from infringing on users’ privacy. He also agreed that centralizing Americans’ financial information and increasing surveillance of their economic activity was simply a bad idea.
Senator Grassley said monetary policies with the potential to create such a huge impact on the livelihood of American citizens should only be made by Congress and not government bureaucrats. The Iowa representative added that the bill would ensure Americans can spend their money however they choose, with no one snooping on their activities.
Federal Reserve Goes Ahead With CBDC Plans Despite Opposition From Republicans
Ted Cruz’s bill follows similar legislation proposed by Florida governor Ron DeSantis earlier this week. The U.S. Presidential hopeful said his government would ban people from using any federal or foreign-issued CBDCs as money within the state. South Dakota Governor Kristi Noem vetoed a federal bill amending the Universal Commercial Code of all 50 U.S. states to make it easier for the federal government to implement the digital dollar.
CBDCs are mainly opposed by Republican lawmakers who instil that the Federal Reserve and the U.S. government could exploit the digital dollar to spy on American citizens.
Meanwhile, the Fed is preparing to launch FedNow, an instant transaction settlement service intended for consumers and businesses to make real-time payments. FedNow, which is touted as a precursor to the digital dollar, is expected to launch in the second quarter of 2023.