House Subcommittee Considers Potential for Central Bank Digital Currencies

The House Financial Services Subcommittee on Monetary Policy and Trade considered testimony on the future of cryptocurrencies, including the potential development of central bank digital currencies (“CBDCs”).

The following witnesses testified at the hearing: Dr. Rodney J. Garratt, Professor of Economics at the University of California in Santa Barbara, Dr. Norbert J. Michel, Director of the Heritage Foundation Center for Data Analysis, Dr. Eswar S. Prasad, the Nandlal P. Tolani Senior Professor of Trade Policy at Cornell University, and Mr. Alex J. Pollock, Distinguished Senior Fellow at the R Street Institute.

Dr. Garratt noted the increased prevalence of electronic payment systems and resulting decline in the use of cash for payments. He suggested the possibility of developing a “widely accessible, retail-oriented [CBDC] that could be used by the public for person-to-person and retail transactions.” Dr. Garratt acknowledged the various risks associated with such an undertaking, and asserted that further research will be necessary to better understand the monety policy and financial stability issues.

Dr. Michel explained that paper-based payments have faded in popularity. He encouraged the “neutral” treatment of all forms of currency, including cryptocurrency, and asserted that capital gains taxes should not apply to cryptocurrency transactions. Dr. Michel argued against both the development of CBDCs and restrictive policies that may limit the development and growth of private cryptocurrencies, and applications of distributed ledger technology.

Mr. Pollock warned of the dangers of CBDCs. He cautioned that CBDCs could potentially result in an “increase of the monopoly power of central banks.”

Dr. Prasad also warned of the potential effects of CBDCs on traditional banking structures.

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