Republican members of the US House Committee on Financial Services have sent a letter to Federal Reserve Chair Jerome Powell outlining the tasks they see as most salient in the path toward a central bank digital currency (CBDC).
The Fed released a discussion paper on a possible digital dollar in January of this year.
In that paper, the Fed identified the pros and cons of a CBDC and invited public comments to open the discussion on how a CBDC could improve the domestic payments system. Now, lawmakers are asking the Fed to address the parts of the financial system that a CBDC could improve.
"As the Fed considers its next steps, we believe it is necessary to first understand the problems a CBDC would solve," said the letter. "Moreover, we believe the Fed should understand whether the benefits of a CBDC outweigh the risks to commercial banks, the existing payments system, and consumers."
Lawmakers have asked the Fed to discern inefficiencies in the US payment system and examine whether a CBDC would mitigate them.
That includes taking a look at whether a CBDC could address the needs of the unbanked and underbanked. The existing Fed paper doesn't adequately address how a CBDC would solve difficulties unbanked individuals may have in paying minimum balance fees or distrust of banking institutions that could lead them to avoid the banking system, according to the lawmakers.
To that end, the letter advocates for a private-sector approach, specifically advocating for the use of stablecoins in payment systems.
"Committee Republicans believe stablecoins, if issued under a clear regulatory framework, hold promise as a potential cornerstone of a modern payment system," said the letter. "Transacting in stablecoins has the potential to be a more efficient, faster, and less expensive payment option than what currently exists."
The signatories requested that the Fed conduct a "detailed analysis" on how a CBDC might impact the stablecoin market, particularly through the lens of innovation and competition.
Lawmakers are also interested in how a CBDC might be used as a monetary policy tool by the Fed, and have requested an analysis of how it could impact the central bank's decision-making. It also advocates for further examination of the privacy and security mechanisms of a CBDC.
The letter, dated May 18, has been signed by all 24 members of the Committee, which includes crypto advocates like Reps. Warren Davidson, Tom Emmer, and Ted Budd.