US Digital Currency a ‘Unanimous Need’ to Compete With China: House Committee

Five speakers at a hearing for the U.S. House Committee on Financial Services voted in favor of the U.S. developing some kind of national stablecoin or CBDC on Tuesday, citing competition from China’s progress on its digital currency.

CBDC is an acronym for Central Bank Digital Currency, which is a digital version of a country’s fiat currency. CBDCs typically exist on blockchain networks but are centralized and regulated by the issuing country.

The U.S. House Subcommittee on National Security, International Development and Monetary Policy hosted the hearing today, titled “Under the Radar: Alternative Payment Systems and the National Security Impacts of Their Growth.”

Chairwoman @RepMaxineWaters’ opening statement at today’s Subcommittee hearing on the growth of alternative payments systems | ?: pic.twitter.com/NUveQ5zcVE

— U.S. House Committee on Financial Services (@FSCDems) September 20, 2022

Guam House Representative Michael San Nicolas called for an “on-the-record” vote among the panel of witnesses in an effort to gauge the level of necessity for the U.S. government to establish some kind of digital currency like a CBDC.

All five speakers agreed that there was a “unanimous need.” 

Wilson Center Fellow Scott Dueweke, Center for a New American Security Research Assistant Emily Jin, and Atlantic Counsel Nonresident Senior Fellow Dr. Carla Norrlof were three witnesses on the panel focused on technology and economic security. 

TRM Labs Head of Legal and Government Affairs Ari Redbord and Chainalysis Co-founder and Chief Strategy Officer Jonathan Levin were also on the witness panel.

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CBDC launch still uncertain

The panel’s unanimity doesn’t guarantee that a U.S.-based CBDC is in the cards. 

While the vote was simply to clarify the panel’s position, the hearing and its key takeaways indicate that there is a strong chance a CBDC is on the horizon. 

Just a few months ago, Federal Reserve Chair Jerome Powell said such an invention would be “a very important financial innovation” and is “something we really need to explore as a country.”

Why should the U.S. government consider its own CBDC? The committee cited international sanctions, a desire to protect the value of the U.S. Dollar, and threats to national security.

Specifically, Republican Congressman French Hill of Arkansas said that the U.S. must take measures to ensure the U.S. Dollar “remains the reserve currency of the world.”

“Spending money like drunken sailors puts the dollar far more at risk than this debate about digital currency,” Hill argued. “But I urge our bill to be marked up and passed into law so that we can have a definitive all-of-government review of how we maintain a 21st Century competitive U.S. Dollar.”

Democratic Representative Jake Auchincloss of Massachusetts said the hearing was “encouraging” because the group had made progress on bipartisan stablecoin legislation—a sign that CBDCs might be just about the only thing both sides of the aisle can agree on as midterm elections near.

Speakers at the hearing expressed concerns around the threat of China’s growing financial presence as a rival to the U.S. economy. 

Democratic Congressman Jim Himes of Connecticut asked the panelists how the U.S. might be able to counter China without bringing “economic apocalypse” upon the world.

In response, Levin said the U.S. must continue to uphold both property and privacy rights when developing a financial solution. TRM Labs’ Redbord seconded Levin’s sentiment that the U.S. needs “a digital asset that holds our values” so that potential investors have the option of buying into an American CBDC instead of a Chinese one.  

And according to Professor Norrlof, China is developing its own CBDC precisely in an effort to compete with the U.S. Dollar. 

“China is trying to catch up [to the United States], and they are using various methods to try to catch up,” Norrlof said, adding that for China, it’s “crucial” to create a CBDC in order to get “anywhere close” to where the U.S. Dollar is today.

Dueweke added that China’s CBDC is a part of the country’s efforts to “collect information on people.”

While America debates the merits of creating its own CBDC, China is moving ahead with its CBDC trials. The South China Morning Post reported Tuesday that the People’s Bank of China will begin testing out its new digital version of the Chinese Yuan, e-CNY, in four additional Chinese provinces. 

The U.S. will likely feel pressure from other countries besides China to create its own CBDC soon enough. 

“It’s not just a China issue, it’s a general issue.” Norrlof said. “There are about 104 countries currently exploring CBDCs.”

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