Fighting a digital dollar becomes new conservative crypto cause to champion

Conservatives are competing for the title of most anti-central bank digital currency politician.

The list of those jockeying for such a role is extensive, with a tinge of presidential politics to boot. Florida Gov. Ron DeSantis, who is eyeing a Republican presidential primary bid, just filed a bill to ban CBDCs in his home state. Gov. Kristi Noem of South Dakota, a potential vice-presidential pick in 2024, recently used a veto to rail against a possible CBDC.

Elsewhere, conservative Sens. Ted Cruz, R-Texas, and Mike Lee, R-Utah, reintroduced bills to ban CBDCs at the federal level, along with House Majority Whip Tom Emmer, R-Minn.

And Vivek Ramaswamy, a long-shot Republican presidential hopeful and outspoken critic of ESG investing, has turned the digital dollar into a campaign trail issue in Iowa, the first presidential caucus state. 

Central bank digital currencies are the latest crypto policy issue to grab the attention of the GOP, in no small part due to China's introduction of a CBDC several years ago. The Biden administration has formed an interagency task force to study issuing a CBDC, a subject the Federal Reserve has considered for years. Broad questions and critiques remain about privacy concerns and government disruption of the traditional banking sector. 

“Fears of CBDCs can be quickly abated if Congress would just pass a bill to prohibit the federal government from issuing them,” said Bryan Bashur, federal affairs manager for the conservative nonprofit Americans for Tax Reform and a former Cruz staffer.

‘Surveillance and control’

DeSantis is using the specter of a digital dollar as political ammunition against President Joe Biden. The Florida governor slammed the Biden administration when he released his CBDC bill last month. 

“The Biden administration’s efforts to inject a centralized bank digital currency is about surveillance and control,” DeSantis said in a statement. “We will not adopt policies that threaten personal economic freedom and security.”

That frame stems from when China made waves as the first country to use a CBDC and, in the process, raised concerns over how technology and economic policy could be used to exert control over citizens. More than a dozen countries have taken steps toward full-fledged central bank digital currencies this year, according to the Atlantic Council. 

The U.S. Treasury Department is evaluating whether a CBDC is “in the national interest,” Under Secretary for Domestic Finance Nellie Liang said last month. Faster payments are a potential goal for a U.S. digital dollar, though the Federal Reserve says it will roll out a non-digital currency payments service. Regional Fed banks in New York and Boston have experimented with digital dollar transactions.

The Treasury Department, which did not respond to a request for comment, assembled an interagency working group to develop policy recommendations on CBDCs. Still, creating and launching one would likely require a new law. The Biden administration has said that a digital dollar would need support from Congress, the executive branch and the public. 

“While at this point no one could mistake the Biden administration for being particularly enthused by digital assets, the administration’s most recent economic report noted that ‘crypto-assets appear to be here to stay,’” said Miller Whitehouse-Levine, the CEO of DeFi Education Fund, a nonpartisan research and advocacy group in Washington, D.C. “This statement represents an important shift in tone.” 

Lawmakers look to commercial code

The DeSantis bill to ban central bank digital currencies in Florida is moving through the state legislature. The proposal would update the state commercial code to prohibit using a federally adopted CBDC as money. The bill also proposes outlawing any CBDC issued by a foreign reserve or foreign-sanctioned central bank.

Florida isn’t the first state to seek crypto-related changes to the commercial code. Noem, a rumored potential vice-presidential pick who could run for president herself, blasted the possibility of a U.S. CBDC when she vetoed a crypto-related change to her state's commercial code law.

Even if the Florida bill passes, it faces strong scrutiny thanks to a portion of the U.S. Constitution known as the Supremacy Clause. The clause establishes that federal law generally takes precedence over state laws, which could make DeSantis' effort more symbolic than substantive. 

“The legislature contemplates there may be some legal challenges to this,” said Sean Gellis, a crypto lawyer based in Florida. “If the federal government says, ‘Yeah, this is our currency now,’ the Supremacy Clause and the limitations on state government in the federal constitution very well might prevent this law from standing.” 

As digital assets become more popular, banning central bank digital currencies may not be so simple. Stablecoins issued by the private sector will need clearer regulation if digital assets rise in popularity, Gellis said. U.S. House lawmakers drafted a stablecoin regulation bill last year and hope to release a new version later this year.

“If digital currencies are going to happen, and you're going to have them around the world, and you say no central bank digital currency, okay, then we're gonna have to get the private sector stuff right. You're gonna have to get stablecoins that are truly stable and regulated,” Gellis said.

Privacy worries on both sides 

Republicans are hardly the only group worried about how CBDCs could erode privacy. An array of nonprofit organizations have penned guidelines on how the government should address a possible CBDC, including the American Civil Liberties Union, Demand Progress and the pro-crypto Fight for the Future.

Rohan Grey, an assistant professor at Willamette University who testified before Congress on the digital dollar, believes Republicans are more interested in pushing a digital currency to the private sector rather than protecting privacy. 

“There was a pretty clear articulation of a left case for privacy and public money, I think, long before they came along,” Grey said. “Whether it's becoming a partisan issue is really a question of who you want to sort of listen to.”

Meanwhile, in the House of Representatives, both Democratic and Republican lawmakers have drafted CBDC bills.

Rep. Steven Lynch, D-Mass., plans to reintroduce a bill he filed last year to develop a digital dollar that would “incorporate key security and functionality safeguards into the e-cash system” that is typically associated with using physical cash. Lynch is the ranking member on the House Financial Services Committee's Subcommittee on Digital Assets, Financial Technology and Inclusion.

Patrolling privacy issues shouldn’t be a partisan battle, said Whitehouse-Levine, the DeFi Education Fund CEO.

“A CBDC’s potential for misuse is quite potent. It could severely encroach on Americans’ right to financial privacy and enable an unprecedented degree of control over individuals’ private transactions,” Whitehouse-Levine said. “Protecting the right to financial privacy is a non-partisan issue.”