On Tuesday, Republican Senator Ted Cruz introduced legislation to prohibit the Federal Reserve from issuing a direct-to-consumer central bank digital currency (CBDC), citing financial privacy concerns. The move follows a recent announcement from Florida Governor Ron DeSantis, who wants to prohibit CBDCs in his state, and other Republican legislators who have tried to block the government from making use of CBDC transaction data.
According to the announcement, the new bill aims to stop the Fed from developing a digital dollar “which could be used as a financial surveillance tool.” Like other Republicans, Mr. Cruz fears that a federally controlled CBDC would preclude many of the benefits and protections of cash, including the right to financial privacy, as well as threaten the dollar’s dominance and stifle private sector innovation.
“Unlike decentralized digital currencies like Bitcoin,” the Senator said, the Fed’s CBDC model would “centralize Americans’ financial information, leaving it vulnerable to attack,” and “could be used as a direct surveillance tool into the private transactions of Americans.”
The Fed has previously stated that any form of retail CBDC will be privacy-preserving, but this has not calmed Republicans’ concerns about government oversight.
Senator Cruz also said the federal government plans to unilaterally establish a CBDC and effectively mobilize itself into a retail bank. However, the Chair of the Federal Reserve, Jerome Powell, has explicitly stated that any decision to issue a retail CBDC would have to be authorized by Congress. Similarly, commercial banks would likely retain their intermediary role and continue performing their regular activities, such as conducting know your customer checks and detecting potential money laundering.
The proposed legislation, which was initially released a year ago, would outright ban a retail CBDC in the United States.
