[Congressional Record Volume 167, Number 170 (Wednesday, September 29, 2021)]
[Senate]
[Pages S6757-S6758]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



            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.

[[Page S6758]]

  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.