The Congressional Record is a unique source of public documentation. It started in 1873, documenting nearly all the major and minor policies being discussed and debated.
“Central Bank Digital Currencies and Stablecoins (Executive Calendar)” mentioning the Federal Reserve System was published in the in the Senate section section on pages S6757-S6758 on Sept. 29.
The Federal Reserve is the US's central bank, expanding many times during great financial uncertainty and panic. It has faced numerous criticisms since its creation in 1913, such as making the Great Depression worse and for lacking transparency and audits.
The publication is reproduced in full below:
Central Bank Digital Currencies and Stablecoins
Ms. LUMMIS. Mr. President, the Federal Reserve Board of Governors will soon be releasing a discussion paper on a potential U.S. central bank digital currency. Additionally, the President's Working Group on Financial Markets is expected to release a set of recommendations relating to the supervision of stablecoins in the coming weeks. I want to lay out my views on central bank digital currencies and stablecoins in advance of these coming discussions.
Financial innovation has the potential to bring new prosperity to the next generation of Americans, reduce systemic risk, and promote inclusion for many who are, unfortunately, at the periphery of our financial system. America's leadership in global financial services is a heritage our country can rightly be proud of, but our country must not become complacent, because this leadership is a privilege, not a right.
I am supportive of the Federal Reserve Board's efforts to study how central bank digital currency, or CBDC, may be appropriate in the United States. I want to lay out what I believe are the key tenets of a consumer-focused U.S. central bank digital currency, including factors such as legitimate need, financial inclusion, programmability, privacy, and avoiding systemic risk. My comments are only focused on a consumer-
focused central bank digital currency, as an interbank or wholesale central bank digital currency is a different proposition.
The first principle is legitimate need. A serious value proposition must exist in order to move forward with a central bank digital currency, one that cannot be reliably met by private-sector innovation.
It is important to note that the U.S. dollar is already digitized; that is, it has been reduced to electronic form. Most Americans predominantly use an electronic means of banking every day, and interbank settlement also takes place through electronic channels. These payment rails are generally electronic commercial bank money, however. A CBDC would be central bank money, which represents a direct claim on the Federal Reserve System.
So we must ask hard questions about whether there are other means of accomplishing the goals of a central bank digital currency and identify opportunities, risks, and costs.
The second is financial inclusion.
About 5.4 percent of households in the United States did not have a bank account as of 2019, with a further 18.7-percent of the population being underbanked. A CBDC should meaningfully reduce these statistics. A CBDC also has the potential to reduce the cost of payments for both depository institutions and consumers by removing existing frictions in sending money.
The programmability of a CBDC will also likely promote financial inclusion by giving consumers more control over their money, allowing those from disadvantaged backgrounds access to the latest technology features. This would allow consumers to automate the payment of bills, assist with monthly budgeting, reduce or eliminate overdraft fees, and most importantly, allow hard-working Americans to receive their paychecks earlier.
Some additional factors that must be considered as part of the inclusion are the reduction or elimination of minimum balance requirements, ease of access to a CBDC, and convertibility into physical cash.
Third is the concept of programmability. Money represents value, but it is not programmable today.
Programmability, at its core, is the technological means to specify the automated behavior or control logic of money in a manner that is tied to the actual value itself. Programmability focuses on the characteristics of money, including the identity of the owner, the amount of money being transferred, and the conditions under which the outside world can interact with that money.
A CBDC should contain robust programmability, allowing users to easily specify conditions with respect to that money, such as interest payments; payment versus payment, which is ``I only pay you if you pay me''; delivery versus payment, which is ``I give you a security or a commodity only if you pay me''; escrow, or preventing your child from buying ice cream except on Fridays; and, of course, avoiding overdraft fees.
A central bank digital currency should also be future-proofed, with a core code that can be adapted to fully meet future demands and which also contains room for value-added services built upon the CBDC architecture.
Fourth is the critical role of privacy. A CBDC must have the same level of privacy as physical cash today. Appropriate transactional anonymity is a public good. Americans must have confidence that a central bank digital currency is not being used for surveillance and that their personal financial data is either not being collected or is subject to rigorous technological and legal controls, including the Fourth Amendment to the U.S. Constitution. We cannot allow a CBDC to become a panopticon, or an all-seeing eye, as will soon be the case with China's central bank digital currency.
Fifth is avoiding systemic risk and disruption. A CBDC should not create systemic risk or undue disruption to the U.S. economy. Transitional arrangements for a CBDC may be necessary, and physical cash must remain legal tender as long as Americans desire it, with Congress's having the final say on the future of physical cash.
These are the five principles that I consider essential to any central bank digital currency proposal. Congress must have the ultimate say on whether the United States adopts a central bank digital currency. I encourage my colleagues to think deeply about these issues and to develop their own rubric for the future of money.
Finally, I want to say a few words about stablecoins in advance of the President's working group report that will be coming out shortly.
Stablecoins are a claim on commercial bank money or Treasurys or other securities that are freely tradeable on a distributed ledger or blockchain and that are intended to be redeemable at par for the U.S. dollar. Stablecoins are highly liquid and have higher monetary velocity than other forms of the U.S. dollar. Stablecoins also enable faster payments between individuals and businesses than are possible today.
For these reasons, stablecoins are a very important private-sector innovation that have the potential to promote financial inclusion and new market opportunities. However, stablecoins also present certain novel risks to the U.S. economy.
In particular, stablecoins must be 100 percent backed by cash and cash equivalents, and this should be audited regularly.
I am concerned that some stablecoins are not always fully backed by appropriate assets in a transparent manner. I am also concerned that some stablecoin designs could become a silo for high-quality liquid assets, including Treasurys, which have an important and independent role as collateral in capital markets.
Additionally, stablecoin issuers should comply with anti-money laundering and sanctions law and should exhibit a high degree of resiliency. This includes operational risk, cybersecurity and liquidity, and redemption management, consistent with the Federal Reserve's payment system risk policy.
Some issuers of stablecoins and stablecoin-like instruments, including Paxos and Avanti Bank and Trust, are already inside the regulatory parameter. Properly supervised, stablecoins are not tantamount to the so-called ``wildcat banks'' of the 19th century. It may be the case that stablecoins should only be issued by depository institutions or through money market funds or similar vehicles.
We must do more to ensure stablecoins are subject to right-sized regulations and supervision. But, at the same time, we must ensure that these rules enable innovation that can make payments faster, cheaper, and more inclusive. Properly supervised, stablecoins have an important role to play moving forward.
I look forward to continuing the conversation around financial innovation that we began a few months ago as we consider the future of money in our country.
I yield the floor.
The PRESIDING OFFICER. The Senator from Louisiana.
