The CBDC Anti-Surveillance State Act was successfully passed by the United States House of Representatives on May 23, with a vote that showcased clear partisan divisions. This legislation, which will now proceed to a Senate vote, aims to amend the Federal Reserve Act of 1913 in order to prevent Federal Reserve banks from providing specific direct services to individuals. It also seeks to impose restrictions on the use of central bank digital currency (CBDC) in monetary policy, among other objectives.
During the House debate on the CBDC, attendance was notably low, but the discussions were marked by contrasting viewpoints. Republicans expressed concerns about the potential misuse of a CBDC, likening it to a surveillance tool similar to what has been observed in China. On the other hand, Democrats defended the innovation potential of CBDCs, emphasizing the importance of maintaining the international competitiveness of the U.S. dollar. They also criticized the bill for its ambiguous language. Despite these differences, the bill was passed with the support of 213 Republicans and three Democrats, while 192 Democrats opposed it.
French Hill, Chairman of the Financial Services Committee Subcommittee on Digital Assets, Financial Technology, and Inclusion, expressed concerns about potential government abuse of CBDCs. Representative Mike Flood urged the public to consider the implications of a disliked politician having control over a CBDC. Warren Davidson, a member of the Financial Services Committee, compared the New York Fed’s Project Hamilton to China’s digital yuan, labeling it a “creepy surveillance tool” that could be further developed. He stressed the need for the Federal Reserve to respond to legal constraints rather than engaging in dialogue. Representative Alexander Mooney, who proposed an amendment to restrict CBDC research, argued against readily available CBDCs.
During the debate, dramatic references were made to the digital yuan and incidents such as the freezing of bank accounts in Canada during protests by truck drivers against COVID-19 vaccination mandates. Davidson cited George Orwell’s “1984,” the Book of Revelations from the New Testament, and even the Deathstar from Star Wars to emphasize his points. Meanwhile, Marjorie Taylor Greene criticized the “deep state” and the Democratic leadership.
The bill’s implications were a subject of contention. Brad Sherman criticized the bill as a “word salad” favoring “crypto bros” and emphasized that no one would be obligated 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, posing a risk to the global primacy of the U.S. dollar. Waters also suggested that zero-knowledge proof technology could ensure user privacy and highlighted the importance of Federal Reserve holdings of bank reserves for administering payment systems.
She warned that while dollar-pegged stablecoins could lose value in a crisis, 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 drawbacks of the current bill. However, Republicans blocked his proposal.
The CBDC Anti-Surveillance State Act, introduced by Rep. Tom Emmer in February 2023, passed the House with a vote of 216-192. This outcome stands in stark contrast to the previous day’s vote, when 71 Democrats joined 208 Republicans in passing the Financial Innovation and Technology for the 21st Century Act (FIT21), a bill focused on the crypto market structure.
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, viewing it as a significant recognition of the crypto industry’s importance.
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 validation of the crypto industry by Congress. Nicole Valentine, the director of FinTech at the Milken Institute, also welcomed the passage as a positive step. However, the future of both the market structure bill and the anti-CBDC bill in the Senate remains uncertain, reflecting the divided legislative landscape and the absence of complementary bills in the upper chamber.
