There is a US bill in Congress that would limit the ability of app stores to accept payments in digital yuan. The lawmakers have cited it as a national security concern because the payment mechanism could spy on American citizens.
As the Chinese Yuan expands into the United States with the Defending Americans from Authoritarian Digital Currencies Act, three senators, Tom Cotton, Mike Braun, and Marco Rubio, proposed legislation on Thursday. The legislation prohibits United States companies like Google and Apple from launching apps that support China’s digital yuan, also known as e-CNY.
Cryptopolitan reports that according to lawmaker Cotton, the digital currency will control and spy on anyone who uses it. Also, it’s an opportunity the United States cannot afford to give China, and they must reject China’s attempts to undermine it to protect the economy.
Why Lawmakers fear CBDC will infiltrate the US economy and privacy
CBDC is the name given to the digital currency issued by the Chinese central bank as a replacement for physical cash. Cotton says that it isn’t easy to trust digital currency because the state owns it.
China is trying to pump up its digital yuan at global and local levels. In January, Chinese tech giant Tencent added support for the country’s digital yuan to its WeChat Pay wallet.
Repealing China’s digital currency would prevent direct control and surveillance of American citizens’ financial transactions, according to Republican senators.
If this authoritarian regime is using a state-controlled digital currency to infiltrate the economy and personal information of American citizens, we must stop it.Senator Braun’s office
Brainard discusses Stablecoins and the CBDC before a House committee
The vice-chair of the Federal Reserve told the House Financial Services Committee that a CBDC provides stability and interoperability. Also, it is an increasingly complex economic system.
Preparing for the Financial Services Committee’s virtual hearing on the benefits and risks of a United States Central bank digital currency (CBDC), Vice-Chair Lael Brainard of the Federal Reserve submitted a statement in advance. Since over 25 lawmakers had lined up to ask questions, this was an excellent strategic move.
Payments and money the Digital Transformation of the US Dollar
During Brainard’s appearance before Congress, stablecoin market developments influenced the wording of her statement.
Stablecoins have a place in the economy.Lael Brainard
She said that someday, CBDC could coexist and complement stablecoins and commercial bank money. It provides a safe central bank liability in the digital financial ecosystem, similar to how cash exists alongside commercial bank money. In the Q&A, Brainard discussed the need for bank-like regulation of stablecoins with Ohio congressional representative Anthony Gonzalez. During her written statement, Brainard extensively addressed two issues:
- The role of banks in the economy and whether disintermediation will reduce that role
- The fragmentation of the payment system and how a CBDC would affect the current state of affairs there
Brainard also answered the statement in the discussion paper that “The Federal Reserve does not intend to proceed with issuing a CBDC. Not without clear support from the executive branch and from Congress.” Legislators wanted to know if the Fed would consider less-than-ideal options before issuing a CBDC. Brainard argued that limiting CBDC holdings and not offering an interest in CBDC accounts could help credit unions. Also, it would help maintain their economic position and the role of traditional banking in the financial system.
Brainard said a CBDC would provide a settlement currency competing with private-sector systems. However, it would not prevent the fragmentation of the payment system. To put it another way, cash’s share in the United States has dropped from 31% to 20% since 2017. In addition, Brainard told Ted Budd of North Carolina that a CBDC would have complete faith in the government behind it.