Republican members of the U.S. House Banking Committee, one of the most powerful committees in the nation, have called for the Justice Department’s assessment of whether the Federal Reserve has the relevant authority to issue a central bank digital currency (CBDC).
The House group, with signatures of the ranking members Republican Patrick McHenry (R-North Carolina), and French Hill (R-Arkansas), submitted a letter of request on October 5, claiming that the legislative branch should have had the power to issue a CBDC, instead of the federal executive agency.
In other words, the lawmakers believe that the Federal Reserve is not the “appropriate place for the discussion” in terms of making laws on a central bank digital currency.
Can The Fed Issue a CBDC?
U.S. Attorney General Merrick Garland is required to submit a copy of the assessment for clarification. The deadline for the legislative report is within 10 days.
As noted in the letter,
“The House Committee on Financial Services […] has spent considerable time and resources examining both the potential risks and benefits of a CBDC.
The Committee’s review has included analyzing whether the Federal Reserve has the authority to issue a CBDC without authorizing legislation. Committee Republicans emphasized in our CBDC principles that the Federal Reserve does not have the legal authority to issue a CBDC absent action from Congress.”
President Joe Biden introduced the first-ever cryptocurrency regulatory framework in September, emphasizing the financial services industry’s development direction to facilitate cross-border transactions and measures to avoid crypto fraud.
The framework also highlights the CBDC’s enormous potential in the United States. According to the White House, CBDC might promote a more efficient payment system and lay the groundwork for technological innovation.
The adoption of the digital dollar may also enable faster and more environmentally friendly cross-border transactions. The government encourages the Fed to continue CBDC research, exploration, and assessment.
The Justice Department, on the other hand, was entrusted with compiling a report on the dangers posed by illegal uses of digital assets and making proposals for revisions to relevant policies and regulations.
Nations Seek To Settle CBDC Infrastructure
Many countries in the world are making their own efforts to chase the future of money with central bank digital currency. As the Atlantic Council reported, as of March this year, almost 80 countries have been conducting exploration on CBDC.
Nigeria and the Bahamas are the two first nations to fully adopt the national digital currency.
The digital payment trend has accelerated since the global pandemic as users prefer digital transactions and contactless transactions over cash.
Cryptocurrencies have become more popular but the lack of clear regulations and the rise of cybercrime within the sector remain significant issues. That led to the introduction of a government-backed digital asset, a central bank digital currency (CBDC), which employs the underlying technology of cryptocurrency.
Experts believe that CBDCs will contribute significantly to the process of modernizing the monetary environment while innovating interbank transactions and payments in financial markets.
Many countries around the world are exploring how CBDCs will affect their economies, existing financial networks, and stability.
The transition to digital currency presents opportunities while also posing concerns to governments worldwide, particularly the dollar’s standing as the world’s most powerful currency.
The US government unquestionably plans to launch its CBDC. However, the US lags behind the CBDC race when compared to the other three countries with the largest central banks.
Meanwhile, China is at the forefront of the global race, becoming the first major economy to test CBDCs with a digital yuan in 2020.
However, the concept of CBDC comes with flaws, including a stable financial system, monetary policy, consumers’ privacy, and cybersecurity protection.
It’s too early to conclude whether CBDCs will succeed or fail. The digital economy is developing, so each country needs to study, pilot, and experience some mistakes before deciding whether to implement CBDCs or not.