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Republicans in the House Financial Services Committee have set out four principles for a potential central bank digital currency (CBDC) aimed at preserving the role of the United States in the global payments system.
The principles state that a potential digital currency issued by the Federal Reserve must address inefficiencies in the U.S. payment system and must not impede the use of stablecoins. The U.S. CBDC must also promote private sector innovation and address privacy and security protections.
The principles were developed by the ten members of the Committee Republicans’ Digital Asset Working Group to guide Congress’ evaluation of potential CBDC proposals.
“The ball is in Congress’ court,” the representatives wrote, referring to the fact that before any digital dollar is minted, Congress has to give the Fed explicit authority to issue a digital currency.
The principles are intended to ensure the discussion is focused on “whether a Fed-issued digital currency addresses a problem, rather than creating one,” the Republicans said.
“First and foremost, the U.S. dollar and payment system must remain the best in the world. To accomplish this goal, we must not stifle private sector innovation and competition,” they added.
Therefore, they stated that the CBDC should address inefficiencies in both domestic and cross-border payments. This could help achieve the dual goal of maintaining the dollar’s position as the world’s reserve currency, as well as preserving the “global preeminence of the U.S. payment system.”
They also stressed that no government-issued digital currency should impede the development and use of already existing or future stablecoins.
Stablecoins have become a pressing issue for legislators this year after showing a 20-fold increase and reaching a market value of nearly $130bn. According to Securities and Exchange Commission data, more than 75 percent of trading on all crypto trading platforms in October occurred between a stablecoin and some other token.
Earlier this month, a group of federal financial regulators issued a report on stablecoins, recommending Congress require stablecoin issuers to be insured depository institutions and bring custodial wallet providers under appropriate federal oversight.
Although recognizing that stablecoins should be issued under a clear regulatory framework, the Republican statement stresses that the value-pegged digital asset holds promise as a potential cornerstone of a modern payment system.
They also name the role of the private sector as a key to maintaining “the world’s leading payments system.” They underscore that Congress and regulators should establish a regulatory framework that targets the activity and not the technology.
Finally, they stress that the U.S. CBDC must provide privacy and civil liberty protections “in a manner consistent with currency transactions utilized today, and security protections must be addressed.”
Privacy protections have been one of the key policy questions around the world during the examinations of a CBDC. Although in certain countries there are concerns that the government could have excessive insight into, and control over, citizens’ financial transactions, all countries have to overcome the trade-off of privacy with the need to combat crime.
In April, Fabio Panetta, executive board member of the European Central Bank, argued that “privacy could be maintained through technology and the segregation of data that could be put together by competent authorities if they needed to expose illicit activities.”
Applying a similar approach, the Hong Kong Monetary Authority came up with a two-layer architecture that would create both a wholesale and a retail CBDC system. Such a separate but connected arrangement would enable the two layers to be “decoupled” as much as possible to minimise the effects of a potential cybersecurity attack and guarantee user privacy by preventing the central bank from recording any retail balances.
