New legislation before Congress would bar the Fed from holding retail accounts for a CBDC

As the public awaits the Federal Reserve's report on a potential central bank digital currency, one member of Congress aims to block such a CBDC from linking the public to the Fed directly.

On January 12, Representative Tom Emmer (R-MN) introduced a bill to prohibit the Fed from issuing a CBDC directly to individuals. The bill itself is quite brief, with its central text amending the Federal Reserve Act to include the following: 

"Except as specifically authorized under this Act, a Federal reserve bank may not offer products or services directly to an individual, maintain an account on behalf of an individual, or issue a central bank digital currency directly to an individual.’"

In a statement, Emmer said that "the Fed does not, and should not, have the authority to offer retail bank accounts." Emmer specifically cited concerns over the security of customer data, as well as longstanding fears that the Fed would use such access to surveil US citizens and their transactions.


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Such concerns cropped up yesterday, as Fed chair Jerome Powell testified before the Senate Banking Committee

Currently, banks can hold master accounts with the Fed. Commercial banks then act as intermediaries between such accounts and individual clients, in which capacity they are responsible for securing client data. Authorities typically need to get court orders to access client information. 

The prospect of a CBDC has opened up the possibility of individuals having accounts with the Fed. Indeed, such "FedAccounts" appeared briefly in the legislation behind the Covid-19 stimulus package in the spring of 2020, aiming to allow people to use post offices to make withdrawals and deposits. That proposal was later stripped out.

In addition to surveillance concerns, Republicans typically argue that the Fed simply cannot handle those sorts of demands on its systems, while private financial entities are already used to them. As Emmer said in a Twitter thread: "It is important that the United States lead with a posture that prioritizes innovation and does not aim to compete with the private sector." Progressive Democrats, meanwhile, see this as protectiveness over commercial banks. 

A co-chair of the Blockchain Caucus, Emmer is a long-time advocate for crypto. He was one of the authors of a letter asking Powell to report on the Fed's CBDC work back in September. According to Powell, that report is "ready to go."

About Author

Kollen Post is a senior reporter at The Block, covering all things policy and geopolitics from Washington, DC. That includes legislation and regulation, securities law and money laundering, cyber warfare, corruption, CBDCs, and blockchain’s role in the developing world. He speaks Russian and Arabic. You can send him leads at [email protected].