US House passes bill banning Fed from launching 'digital dollar' | Key points

The US House of Representatives on Thursday passed a legislation that bars the US Federal Reserve – the country’s monetary policy authority – from creating the “digital dollar”, a central bank digital currency (CBDC) which has been under consideration over the past few years.

The bill was passed with 216 members voting in its favour, as compared to 192 against it. While most of the Republican members supported it, the legislation also received the backing of three Democrats.

The bill would next be taken up for voting in the US Senate, before being sent to President Joe Biden for approval. The presidential nod will lead to it being enacted as a law.

Meanwhile, other major economies including India and China have already launched CDBCs. The Reserve Bank of India (RBI) had proposed the ‘Digital Rupee’ in January 2017, and launched it in December 2022.

What the US House bill states

The legislation, titled ‘CBDC Anti-Surveillance State Act’, amends the US Federal Reserve Act to bar the monetary policy body from launching a CBDC. "The Board of Governors of the Federal Reserve System and the Federal Open Market Committee may not use any central bank digital currency to implement monetary policy," it stated.

Why the bill was introduced

According to Congressman and Majority Whip Tom Emmer, the bill is aimed at preventing the federal authorities from monitoring and controlling individual Americans’ spending habits through the “surveillance-style CBDC”.

The legislation “prevents unelected bureaucrats from issuing a financial surveillance tool to fundamentally undermine our American values”, Emmer said in a statement.

The bill ensures that the United States' digital currency policy “remains in the hands of the American people so that any development of digital money reflects our values of privacy, individual sovereignty, and free market competitiveness”, he added.

What critics of the bill say

House member Maxine Waters, who voted against the bill, said it would isolate the US. If enacted into a law, the country would be the only major economy in the world to bar its central bank from creating a CBDC.

What is the Fed’s view?

Federal Reserve Chair Jerome Powell had earlier indicated that the central bank is not planning to launch a CBDC anytime soon. Appearing before the US Congress in March, Powell had said the digital dollar was “nowhere near”, and that the Fed would not surpass a congressional nod while launching it.

"We're nowhere near recommending – or let alone adopting – a central bank digital currency in any form…People need not worry about it,” Powell had stated.