A group of Democrats led by U.S. Rep. Stephen Lynch (D-MA) introduced a House bill Monday to create a digital dollar that would be an alternative to the much-discussed central bank digital currency (CBDC) option.
The new bill, called the Electronic Currency and Secure Hardware Act, would allow for a peer-to-peer play on the notion of a digital currency and preserve the anonymity of physical cash, according to a press release Monday from Lynch’s office. The bill would also commission the Treasury Department to create the new currency, turning on its historical role in producing physical currency.
"This innovative legislation would promote greater financial inclusion, maximize consumer protection and data privacy, and advance U.S. efforts to develop and regulate digital assets," Lynch's press release said.
While Lynch noted the program would dovetail with the Federal Reserve’s work on a CBDC, his Treasury approach would tilt away from the prior focus on the Fed’s leadership so far in exploring a digital dollar. Fed Chair Jerome Powell has been slow to pursue the idea over the past year, suggesting he was in no rush to act and delivering a promised report on the possibility of a CBDC months later than initially proposed.
The issue was jump-started this month by President Joe Biden’s executive order focused on digital assets. In the order, Biden placed the "highest urgency" on research and development efforts for a U.S. central bank digital currency, and directed federal government agencies to explore the issuance of a digital dollar.
Lynch, a senior member of the House Financial Services Committee who chairs its Task Force on Financial Technology, has been keenly focused on the issue in recent years. The Massachusetts representative has pushed regulators, including Powell, to move ahead in exploring a U.S. digital currency, in light of other countries’ progress in the area, particularly China’s development of a digital yuan.
"It is absolutely critical for the U.S. to remain a world leader in the development and regulation of digital currency and other digital assets," Lynch said in the press release.
The other Democrats who joined in co-sponsoring the bill also sit on the House committee and are a group focused on serving the unbanked and underbanked constituents in their communities. They include U.S. Representatives Jesús G. "Chuy" García (D-IL), Rashida Tlaib (D-MI), Ayanna Pressley (D-MA) and Alma Adams (D-NC).
"My neighborhood in Chicago is home to one of the strongest immigrant business districts in the country, and it couldn’t run without cash," Garcia said in the release. "Cash remains our strongest tool to promote financial inclusion while preserving privacy and security, and new digital tools should emulate it — not replace it."
The bill calls for the establishment of a Treasury Department pilot program, the Electronic Currency Innovation Program, that would "develop and issue an electronic version of the U.S. Dollar that promotes consumer safety and privacy, financial inclusion and equity, and anti-money laundering and counterterrorism compliance," the press release said. The proposal also calls for the appointment of a director for the program.
"Importantly, this pilot program will also preserve a role in our financial system for smaller anonymous cash-like transactions which are currently transacted in physical dollars and which have seen a rapid decline in use," Lynch said in the press release. A spokesperson said Lynch was unavailable for an interview.
Rohan Grey, an assistant law professor of Willamette University's College of Law in Salem, Oregon, who played a role in crafting the new bill, said it makes sense to allow the Treasury Department, which has experience in the currency arena through the Bureau of Fiscal Service, to take the lead in creating a new electronic currency that preserves the kind of privacy individuals have in using paper cash.
The Fed doesn't necessarily have the statutory authority to create a CBDC or the capacity to maintain the retail accounts that would be required for a CBDC, Grey said in an interview. Beyond that, giving the Fed the power for electronic surveillance of digital currency isn't a good idea because of the potential for infringing on users' privacy, Grey said.
Grey, who is also research director of the Digital Fiat Currency Institute, has worked with other lawmakers during the past few years on possible government approaches to digital currency and testified before the House Task Force on Financial Technology last year. He has also participated in consumer advocacy for privacy in such matters with the nonprofit Modern Money Network headquartered at Columbia University in New York.
The Lynch bill was expected to be taken up at a hearing of the House Financial Services committee Monday, but that public airing was delayed, due to the status of related CBDC legislation, Grey said. In any case, the professor expects a hearing of the task force to be dedicated to the new Lynch bill sometime soon.
Other Congress members have been concerned about preserving the right to use cash, too. Rep. Donald Payne Jr. (D-NJ) in recent years has sought support for the Payment Choice Act that would enshrine the right to pay with cash and would bar merchants from rejecting it.
Grey believes all of these digital and cash issues may be wrapped into one comprehensive bill. "This (Lynch bill) will feed into a larger conversation about supporting cash," he said.