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In a recent development, Republican senators have put forward a bill to ban digital currencies backed by central banks. This move could potentially hinder the Joe Biden administration’s exploration of the technology.
What Happened: GOP senators have proposed a bill that would ban the use of official cryptocurrencies supported by central banks. These digital assets, known as Central Bank Digital Currencies (CBDC) or stablecoins, have been under the Biden administration’s scrutiny and the Federal Reserve’s study, reported The Hill.
The senators argue that Fed-backed cryptocurrencies could infringe on privacy rights by giving regulatory authorities access to individual Americans’ spending habits. Sen. Ted Cruz (R-Texas) referred to CBDCs as “programmable money” that could provide the federal government with significant transaction-level data.
The Biden administration has shown interest in cryptocurrencies since 2022, issuing an executive order to study the technology and its potential incorporation into the economy. However, the White House has not explicitly endorsed the creation of a CBDC, and Fed Chair Jerome Powell stated that the central bank would not create one without congressional approval.
The proposed GOP legislation would prevent the Fed from authorizing Fed stablecoins for individual use and from allowing credit unions, retail banks, and other third parties to issue them to their members or customers. This move could potentially eliminate the compromise of providing stablecoins through third-party financial institutions, balancing privacy risks and efficiency gains.
Why It Matters: The proposed legislation follows a series of concerns raised by prominent figures. In January, entrepreneur and former presidential candidate Vivek Ramaswamy expressed fears that a digital dollar could grant the government excessive power to target dissenting individuals by freezing their assets. Later that month, former President Donald Trump vowed never to allow the creation of a CBDC in the U.S.
In February, Rep. Warren Davidson (R-Ohio) called CBDCs a fundamental threat to the very foundation of Western society, leading to the House Financial Committee approving a bill to prohibit such currencies. Trump also seemed to soften his stance on Bitcoin following his criticism of CBDCs.
