Congressman Calls for U.S. Central Bank-Backed Digital Currency

U.S. Rep. Jim Himes (D-Conn.) argued a digital dollar will support fiat’s role as the global reserve currency as well as underbanked individuals and could be considered more trusted than cryptocurrency in a white paper published on Wednesday. 

In the 15-page proposal, Himes argues that the U.S should create a central bank digital currency (CBDC), while providing a comprehensive plan, definitions and other important considerations for its potential creation and release. 

The proposal also compared a potential CBDC to other cryptocurrencies like Bitcoin and Tether and the differences between wholesale and retail CBDCs. Lastly, it talked about the security and privacy of using a digital dollar opposed to cryptocurrencies. 

"A U.S. CBDC would have advantages over privately issued stablecoins and crypto-assets, most notably the ability to be backed by the full faith and credit of the U.S. government, like traditional cash, and would provide holders with a degree of safety that may not be offered by privately issued stablecoins because of the risk associated with sponsors’ reserves," the document said. 

This white paper comes as the broader crypto market is experiencing a horrendous downturn, which has seen Bitcoin drop to less than $21,000, Ether decrease to below $1,100, UST depeg from $1 and drop to virtually zero, along with other platforms experiencing insolvency problems such as Celsuis and Three Arrows Capital. 

The white paper notes that a CBDC poses certain privacy and security risks, and suggests implementing various encryption tools and consulting the public for their opinion. 

“A CBDC, however, by virtue of its federal backstop, carries unique risks to credit provision, monetary policy, and the stability of the banking system,” the proposal said. “Under certain conditions, a U.S. CBDC might be regarded as a substitute for commercial bank money, raising the possibility of reduced deposits in the banking system.” 

Himes argued a CBDC should use a permissioned semi-distributed architecture, opposed to a true blockchain, allowing for intermediaries to access the network if needed. 

Other countries are already considering issuing a CBDC, the paper notes.

The white paper also notes that a CBDC could pose risks to privacy or security, as well as broader monetary policy implications. Himes proposed the Fed "experiment with a wide range" of privacy and encryption tools to protect consumer data.

"A U.S. CBDC should be regarded as an alternative rather than a substitute for commercial money and payment systems,” the white paper said. Therefore, the architecture and characteristics should not 'squeeze out' activity more efficiently or appropriately provided by commercial entities.”

Furthermore, the white paper argued for an account-based wallet system, rather than a token-based system, requiring watchdogs to conduct know your customer (KYC) processes on the users of wallets. 

Author: Tyler Irvin

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