Cbdc Anti-Surveillance State Act
Floor Speech
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Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
Madam Chair, I rise in strong opposition to H.R. 5403, which would not only prohibit the issuance of a central bank digital currency, or CBDC, but would go so far as to prohibit the Federal Reserve from holding bank reserves that are critical to operating payment systems and combating inflation.
Let me start with the harmful implications of the bill's prohibitions on the issuance of a CBDC.
A CBDC is a type of digital asset issued by a country's central bank, which in the United States is the Federal Reserve.
Compared to other digital assets, CBDCs have a greater potential to maintain a stable value, garner public trust, and become a viable means of payment transactions.
There are two main types of CBDCs, retail CBDCs that consumers could get from the Fed or a financial institution to pay for everyday things like a cup of coffee, and wholesale CBDCs that would not be used by individual consumers and instead only used for transactions among financial institutions and the Fed.
CBDCs are no longer a remote, futuristic possibility. Madam Chair, 134 countries and currency unions around the world, representing 98 percent of global GDP, are currently exploring or implementing a CBDC.
Some have referred to the development of a CBDC as the next space race, but the United States is way behind the curve.
What is more, there is growing concern that China, which has already issued its own CBDC that has been used by hundreds of millions of people, will be able to significantly influence the rest of the world's CBDC development because the U.S. is so far behind.
This is especially problematic, given the Chinese CBDC has government surveillance baked in while a United States CBDC could be designed to protect consumer privacy and other deeply held American values.
This bill exacerbates these concerns by proposing to make the United States the first and only country in the world to ban a CBDC.
By allowing other countries, especially China, to race ahead of us, H.R. 5403 directly threatens the primacy of the United States dollar.
Today, more than half of all international trade and more than 90 percent of all foreign exchange transactions are done in dollars. The dollar's dominance provides significant benefits to the United States, like lower borrowing costs for consumers, lower capital costs for United States businesses, and the ability to better implement U.S. foreign policy goals.
In fact, the dollar's widespread use is what makes our sanctions so powerful, allowing us to block adversaries like Russia and Iran from doing business not just with the United States but with anyone who uses the dollar.
That is why countries, including China and Russia, are trying to establish an alternative to the dollar, including developing alternative digital currencies so they can more effectively evade United States sanctions.
CBDCs also have the potential to offer benefits compared to United States dollars like faster and cheaper transactions.
If the United States sits on the sidelines as other major economies move forward with CBDC development, another digital currency like the digital euro could very well become the world's preferred currency for international trade.
If this weren't bad enough, the nonpartisan Congressional Budget Office, or CBO, has pointed out that the ban on CBDCs in this bill can be interpreted to encompass the Federal Reserve's bank reserves.
These reserves are instrumental to several core functions of the Fed, including their ability to conduct monetary policy.
This means that H.R. 5403 would undermine the Federal Reserve's set of tools needed to ensure our economy does not enter a recession as inflation comes down.
It also means that the bill could disrupt our banking system by preventing the Fed from using payment systems like Fedwire to quickly move funds between financial institutions.
While some may think that this is merely a drafting error, it appears to be deliberate. During the markup of their bill, Democrats pointed out on the record how this overly broad definition of CBDC could harm the Fed's broader ability to conduct monetary policy.
Despite having every opportunity to fix the bill before it was considered here today, Republicans have kept the language the same.
Let's not forget that Donald Trump has made clear his intention to undermine the Fed with repeated threats to fire the Fed Chair when he was in office, and more recently, with reports that he would want to set interest rates from the Oval Office.
Furthermore, Project 2025, which is an extreme MAGA transition playbook for a Trump administration, would abolish the Fed. House Republicans have already introduced a bill to do just that.
I urge Members to see this bill for what it is. It is not about protecting consumer privacy. After all, our current financial system has a number of data privacy shortcomings that this bill would do nothing to address.
Moreover, there is nothing inherent about a CBDC that would compromise privacy. That is a design feature that is within our control.
This bill is, instead, an attempt to stifle U.S. innovation and competitiveness abroad and to undermine the Federal agency that is the most critical to fighting inflation. Unbelievable.
I urge Members to vote ``no'' on this bill. I reserve the balance of my time.
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Ms. WATERS. Madam Chair, I yield 5 minutes to the gentleman from Massachusetts (Mr. Lynch), who is also the ranking member of the Subcommittee on Digital Assets, Financial Technology and Inclusion.
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Ms. WATERS. Madam Chair, I yield myself such time as I may consume.
I am surprised by my friend Representative French Hill. Representatives French Hill and Bill Foster sent Fed Chair Jay Powell a letter on CBDCs stating:
The Federal Reserve, as the central bank of the United States, has the ability and the natural role to develop a national digital currency.
With the potential for digital currencies to further take on the characteristics and utility of paper money, it may become increasingly imperative that the Federal Reserve take up the project of developing a U.S. dollar digital currency.
We are concerned that the primacy of the U.S. dollar could be in long-term jeopardy from wide adoption of digital fiat currencies.
Relying on the private sector to develop digital currencies carries its own risks, including loss of control of monetary policy, as well as the ability to implement and enforce effective anti-money laundering and counterterrorism financing.
Madam Chair, I yield 5 minutes to the gentleman from California (Mr. Sherman), who is also the ranking member of the Subcommittee on Capital Markets.
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Ms. WATERS. Madam Chair, I yield the gentleman from California an additional 1 minute.
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Ms. WATERS. Madam Chair, I yield 1 minute to the gentleman from Massachusetts (Mr. Auchincloss).
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Ms. WATERS. Madam Chair, I yield 2 minutes to the gentleman from Connecticut (Mr. Himes) who is also the ranking member of the Permanent Select Committee on Intelligence.
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Ms. WATERS. Mr. Chair, the bill's sponsor has warned that a U.S. CBDC would mirror the surveillance tactics that are baked into the Chinese CBDC without explaining why the United States would ever choose to design its CBDC in a manner that mimics Chinese surveillance.
Privacy protections can be incorporated from the earliest development stages of a CBDC. This is what other privacy-focused jurisdictions have been doing with their CBDC development, like the European Union, because their constituents care about privacy, too.
In fact, research from the Atlantic Council has noted that CBDCs can be designed in a way that offer cash-like privacy through the use of zero-knowledge proofs, encryption, and other design features where a payment validator processes transactions but does not learn the identities of those involved without the permission of the parties.
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Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
Mr. Chair, I am struck by the way Republicans have so quickly changed their tune on how we should be promoting innovation. Here are just a couple of quotes from Republicans from the debate just yesterday.
Representative Davidson: ``For too long, we have pushed innovation and investment in digital asset projects overseas. . . . We finally have the chance to end this trend and solidify ourselves as the leaders in this industry.''
Mr. McHenry: ``We are falling behind Europe. This bill catches us up so that we do not lose out on innovation policy to the Europeans, to the folks in the U.K., to Singapore, to Japan, to Hong Kong, that all have regimes similar to what we are doing in this bill. . . . The next generation of internet technology is being written. It should be written by American innovators here in the United States. We can allow that innovation to pass us by, or we can seize the opportunity.''
The double standard is simply stunning.
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Ms. WATERS. Mr. Chair, I yield myself such time as I may consume.
Mr. Chair, if privacy is the main concern motivating the supporters of this bill, then it is wholly unclear why the bill would ban wholesale CBDCs, which do not pose privacy concerns because they would not be used by consumers at all. They would be used by banks and other institutions to reduce transaction costs and improve payment speed in cross-border transactions with other institutions.
For these reasons, it was the American Bankers Association that advocated for the exclusion of wholesale CBDCs from this bill when it was marked up by our committee.
Supporters of this bill can't explain to the American people why a prohibition on a wholesale CBDC would protect their privacy so they resort to baseless fearmongering.
Mr. Chair, I yield 30 seconds to the gentleman from California (Mr. Sherman).
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Ms. WATERS. Mr. Chair, according to an analysis written by Jaret Seiberg with TD Cowen, published today, May 23, 2024:
We do see risk in the House looking today to pass a related bill that would ban the United States from launching a digital dollar.
We view such a ban as negative for the global dominance of U.S. banks and for the global role of the U.S. dollar. This is because the ban would apply to wholesale, as well as consumer use. That could give the euro or other currencies that are digitized an edge in being used for global trade as stablecoin digital dollars could lose value if there is a redemption run, while a digital euro would not face that threat.
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Ms. WATERS. Mr. Chair, I yield myself the balance of my time to close.
Mr. Chair, yesterday, we debated a Republican bill that would substantially deregulate the crypto industry, allowing most crypto to operate without a primary regulator and with virtually no regulation. Where was the concern about a consumer's privacy then?
Just yesterday, Republicans threw all of the existing protections for consumers, including privacy, out the window in the name of so-called crypto innovation and U.S. competitiveness. When it comes to the one crypto innovation that could impact our national security interests and economy, my colleagues want to stop that innovation in its tracks.
There is simply no reason to unilaterally tie our own hands in this respect and risk undermining the primacy of the U.S. dollar in the process, and it would be harmful to every American to make it harder for the Federal Reserve to combat inflation.
The stakes with this bill are incredibly high. The strength of the United States dollar, our ability to innovate and compete globally, our ability to impose sanctions and protect our interests abroad, and our ability to stop inflation are all well on the line.
Mr. Chair, I certainly urge a ``no'' vote on this bill, H.R. 5403, and I yield back the balance of my time.
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Ms. WATERS. Mr. Chair, I claim the time in opposition.
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Ms. WATERS. Mr. Chair, I oppose this amendment, which doubles down on the Republican efforts to prohibit CBDCs, which, if Republicans read their own bill, is already prohibited in the bill.
This sense of Congress only causes further confusion on how the bill should be interpreted as a whole by duplicating things that are already in the bill by wording them in a slightly different manner.
Experts from Atlantic Council have warned that: ``If this bill ever became law, the United States would be the only country in the world to have banned CBDCs. It would be a self-defeating move in the race for the future of money. It would undercut the national security role of the dollar as the decision would only accelerate other countries' development of alternative payment systems that look to bypass the dollar in cross-border transactions. This would make U.S. sanctions less effective.''
Mr. Chairman, I urge Members to oppose this amendment, and I reserve the balance of my time.
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Ms. WATERS. Mr. Chairman, Republicans are focused on the bill's prohibition on CBDCs, but according to the nonpartisan CBO: ``The bill's prohibition on the Federal Reserve's use or issuance of a central bank digital currency could apply to bank reserves, which are a unit of value and a liability of the Federal Reserve.''
As the CBO also acknowledges, bank reserves are a primary tool for the Fed in conducting monetary policy. Prohibiting the Fed from holding bank reserves could very well take us backward, erasing all progress that the Fed has made so far in reducing inflation and achieving a soft landing. A vote for this bill is a vote for higher inflation and economic uncertainty.
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Ms. WATERS. Mr. Chairman, this bill is opposed by the following organizations: Americans for Financial Reform, Demand Progress, Public Citizen, and Take on Wall Street.
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Ms. WATERS. Mr. Chair, in closing, I urge my colleagues to oppose this amendment and the underlying bill, and I yield back the balance of my time.
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Ms. WATERS. Mr. Chair, I demand a recorded vote.
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Ms. WATERS. Mr. Chair, I claim the time in opposition to the amendment.
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Ms. WATERS. Mr. Chair, I urge Members to oppose the Mooney amendment, which explicitly bans CBDC pilot programs. Like the last amendment we just considered, this amendment bans something that H.R. 5403 already bans. Oddly, this amendment would exacerbate the confusing drafting in H.R. 5403, by prohibiting something in two places but in slightly different ways.
In fact, all three of these amendments that we are considering for this bill overlap with existing provisions in the underlying bill, which leads me to believe that Republicans simply don't understand what their own bill does.
Let me again try to explain their own bill. This amendment and the bill both prohibit the Fed from conducting a study on how to design a central bank digital currency using a pilot program. In case the public is wondering, the New York Fed is currently conducting a pilot through its New York Innovation Center to test the benefits and drawbacks of a wholesale CBDC in collaboration with U.S. banks and the Monetary Authority of Singapore.
This pilot does not mean that at the end the Fed will issue a CBDC or that Americans will have one. In fact, the Fed has made it abundantly clear that it wants Congress to authorize it to do so, but how is Congress going to be able to make this decision if we don't have any research as to how a CBDC could be designed that reflects our values?
Again, importantly, to counter misinformation from the other side of the aisle, wholesale CBDCs are not used by individual consumers. They are only used by institutions to transfer funds, so there are no consumer privacy issues with wholesale CBDCs because consumers are not directly involved.
If the point of this bill is to protect consumer privacy, the sponsor should have directed the Fed to ensure that it only tests a CBDC that does that.
Mr. Chair, I urge Members to oppose this harmful amendment and H.R.
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Ms. WATERS. Mr. Chair, it seems that Republicans remain focused on CBDCs when, as I have explained, the CBO has pointed out that the definition of CBDC in this bill can be interpreted to include bank reserves held by the Fed. Bank reserves are used as the settlement funds for interbank transactions that are facilitated by the Fed via its payment systems. This means that prohibiting the Fed's ability to hold bank reserves would make it difficult, if not impossible, to administer these payment systems likely causing a massive disruption to our banking and payment systems.
A vote for this bill is a vote to disrupt our banking systems. Republicans are refusing to acknowledge the broader impacts of this bill to undermine the Fed, disrupt our banking and payment systems, and risk higher inflation, but the American people should know the truth.
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Ms. WATERS. Mr. Chair, like the underlying bill, this amendment closes off opportunities for innovation and harming our influence around the world before we have even had a chance to fully study, test, and understand CBDCs.
This bill and amendment represent the wing of the Republican Party that is anti-science and, ironically, scared of the innovation they claim to like. Again, this amendment does not prohibit the issuance of a CBDC; it is prohibiting the research on how CBDCs work.
I can't stress how irresponsible it is for Congress to be passing blanket prohibitions on research based on unwarranted views. I can understand fears about potential outcomes, but I cannot understand fear of research.
Mr. Chair, I urge my colleagues to vote ``no'' on this amendment and H.R. 5403, and I yield back the balance of my time.
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Ms. WATERS. Mr. Chair, I demand a recorded vote.
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Ms. WATERS. Mr. Chair, I claim the time in opposition to the amendment.
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Ms. WATERS. Mr. Chair, with this amendment, my Republican colleagues are really piling on to ensure the Fed is prohibited from even thinking about CBDCs. Yet again, this amendment is not adding anything substantive that isn't already in the bill. Instead, it is making worse the internal drafting inconsistencies in H.R. 5403.
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Ms. WATERS.
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Ms. WATERS. Mr. Chair, this amendment, like the underlying bill, is dangerous and rash. It would prohibit the U.S. from even training for a race that has already begun.
Mr. Chair, I urge my colleagues not to cave to baseless fear- mongering. I have already explained in depth how the privacy concerns from Republicans do not align with the actual facts. I simply urge my colleagues to vote ``no'' on this amendment and the underlying bill, and I yield back the balance of my time.
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Ms. WATERS. Mr. Chair, I demand a recorded vote.
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