During today’s Congressional hearing about central bank digital currency (CBDC) multiple Members of Congress expressed reservations about a digital dollar. While most of them were Republicans who believe payment innovation should be left to the private sector, the divide was not entirely based on party lines.
The specter of China leading the way in establishing standards and using the digital yuan for cross border payments featured heavily during discussions. As did China’s ability to monitor and potentially block private payments.
Congressman Patrick McHenry (Republican) was particularly concerned about this latter point. “If we don’t move as Americans, international settlements, remittances, could go to a regime that we’d not like. But domestically, Mr (Professor) Levin raises this issue of the cost of payments,” said McHenry.
Domestic versus cross border
He concluded that there are two separate questions, one international and the other domestic. And hence he believes perhaps there could be two approaches, a CBDC for international use and regulated stablecoins for domestic use.
Democrat Congressman Jake Auchincloss had similar concerns to McHenry. He said, “I found the case for CBDCs for geo-economic and strategic purposes very compelling. And I understand why the United States needs to catch up, both to retain its economic leverage, (and) retain the U.S. dollar as the (global) reserve currency.” On a related point, several members raised the topic of retaining the United States’s ability to enforce sanctions.
However, Auchincloss also had major reservations about a CBDC for domestic use cases. And he too wondered whether it would be possible to progress an international CBDC and hold off domestically.
Multiple witnesses responded that it makes sense to iron out issues domestically before moving to international. Yaya Fanusie from the Center for a New American Security painted a clear picture: “If we are in a forum and it’s a bunch of countries, central banks, across the table, and China puts all this data, all these examples of how its trials have worked domestically, what do we have? Just theoretically how things should work?” Although he noted that, of course, the U.S. would have a seat at the table.
Blurring lines between fiscal and monetary policy
Auchincloss also expressed concerns that if the Federal Reserve made payments directly to citizens, whether this wasn’t fiscal policy and outside of the Fed’s remit. Several Members of Congress expressed similar concerns, while others, such as Congresswoman Ocasio-Cortez, noted how direct Fed payments might have reduced delays for COVID relief payments.
She was followed by Republican Warren Davidson, who asked the witnesses whether it was more important for the U.S. dollar to remain the world’s reserve currency or that the United States has sound money. All the witnesses responded that they go together. Congressman Davidson then argued that helicopter money was destroying the dollar, which is why there’s interest in other currencies.