[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]






                     DIGITAL ASSETS AND THE FUTURE
                   OF FINANCE: EXAMINING THE BENEFITS
                      AND RISKS OF A U.S. CENTRAL
                         BANK DIGITAL CURRENCY

=======================================================================

                            VIRTUAL HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 26, 2022

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-88




               [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]






                                 ______
                                 

                 U.S. GOVERNMENT PUBLISHING OFFICE

47-883 PDF                WASHINGTON : 2023












                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            ANN WAGNER, Missouri
ED PERLMUTTER, Colorado              ANDY BARR, Kentucky
JIM A. HIMES, Connecticut            ROGER WILLIAMS, Texas
BILL FOSTER, Illinois                FRENCH HILL, Arkansas
JOYCE BEATTY, Ohio                   TOM EMMER, Minnesota
JUAN VARGAS, California              LEE M. ZELDIN, New York
JOSH GOTTHEIMER, New Jersey          BARRY LOUDERMILK, Georgia
VICENTE GONZALEZ, Texas              ALEXANDER X. MOONEY, West Virginia
AL LAWSON, Florida                   WARREN DAVIDSON, Ohio
MICHAEL SAN NICOLAS, Guam            TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
RITCHIE TORRES, New York             JOHN ROSE, Tennessee
STEPHEN F. LYNCH, Massachusetts      BRYAN STEIL, Wisconsin
ALMA ADAMS, North Carolina           LANCE GOODEN, Texas
RASHIDA TLAIB, Michigan              WILLIAM TIMMONS, South Carolina
MADELEINE DEAN, Pennsylvania         VAN TAYLOR, Texas
ALEXANDRIA OCASIO-CORTEZ, New York   PETE SESSIONS, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

                   Charla Ouertatani, Staff Director
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 26, 2022.................................................     1
Appendix:
    May 26, 2022.................................................    43

                               WITNESSES
                         Thursday, May 26, 2022

Brainard, Hon. Lael, Vice Chair, Board of Governors of the 
  Federal Reserve System.........................................     4

                                APPENDIX

Prepared statements:
    Brainard, Hon. Lael..........................................    44

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the American Bankers Association........    50
    Written statement of the Independent Community Bankers of 
      America....................................................    75
    Written statement of the National Association of Convenience 
      Stores.....................................................    79
    Written statement of the National Association of Federally-
      Insured Credit Unions......................................   107
    Written statement of the National Community Reinvestment 
      Coalition..................................................   110
    Written statement of the Retail Industry Leaders Association.   127
McHenry, Hon. Patrick:
    Written statement of the Bank Policy Institute...............   130
    Written statement of the Electronic Transactions Association.   136
    Joint trade association letter...............................   138
    Letter to Hon. Jerome Powell, Chair, Board of Governors of 
      the Federal Reserve System, dated May 18, 2022.............   144




 
                     DIGITAL ASSETS AND THE FUTURE
                       OF FINANCE: EXAMINING THE
                      BENEFITS AND RISKS OF A U.S.
                     CENTRAL BANK DIGITAL CURRENCY

                              ----------                              


                         Thursday, May 26, 2022

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 12:06 p.m., via 
Cisco WebEx, Hon. Maxine Waters [chairwoman of the committee] 
presiding.
    Members present: Representatives Waters, Sherman, Scott, 
Cleaver, Perlmutter, Himes, Foster, Beatty, Gottheimer, Axne, 
Casten, Pressley, Lynch, Garcia of Illinois, Garcia of Texas, 
Williams of Georgia, Auchincloss; McHenry, Posey, Luetkemeyer, 
Huizenga, Barr, Hill, Zeldin, Loudermilk, Mooney, Davidson, 
Budd, Kustoff, Gonzalez of Ohio, Rose, Steil, and Timmons.
    Chairwoman Waters. Thank you very much. The Financial 
Services Committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    Today's hearing is entitled, ``Digital Assets and the 
Future of Finance: Examining the Benefits and Risks of a U.S. 
Central Bank Digital Currency.''
    I now recognize myself for 5 minutes to give an opening 
statement.
    While cryptocurrencies have the potential to offer several 
efficiencies in the way that we send and receive money, the 
early stages of innovation in this round are revealing the 
clear risk associated with some cryptocurrencies, including 
significant volatility, and even so-called stablecoins, that, 
despite their name, have been anything but a stable value. 
Earlier this month, we saw the dramatic collapse of Terra, 
which, according to one analysis firm, resulted in investors 
losing more than $40 billion in a product that was supposed to 
always return $1 for each dollar invested.
    Central bank digital currencies (CBDCs) have the potential 
to harness the efficiency of cryptocurrencies, while providing 
the security and stability of the U.S. dollar backed by the 
full faith and credit of the Federal Government. As we explore 
the possibility of a U.S. CBDC and the future of the global 
financial system, we must keep in mind that we may very well be 
in the midst of a new digital asset space race, with countries 
around the world competing to deploy digital versions of their 
own currencies, and America can't be left behind.
    The U.S. dollar has long been the global leader and reserve 
currency worldwide, and Americans reap enormous benefits from 
having their currency widely accepted across the globe. For 
example, a reserve currency means that the United States 
Government's cost of financing is lower, which translates long 
term into lower mortgage and credit card rates than consumers 
see in other countries. But it is not hard to imagine how 
another major economy's CBDC could chip away at the dollar's 
leadership status because of the efficiencies that CBDCs could 
offer in making instantaneous and secure payments at lower 
cost.
    According to estimates, over 90 nations, representing 90 
percent of the global GDP, are researching, piloting, and 
developing CBDCs, including China, which rolled out its CBDC at 
the Winter Olympic Games in Beijing. As the U.S. explores the 
potential for our own CBDC, I believe the design of this 
digital dollar should balance the need for privacy protections, 
while retaining mechanisms to prevent money laundering and 
other illicit uses. I also strongly believe that a U.S. CBDC 
should be designed to promote financial inclusion. These are 
values that I believe that Democrats and Republicans share in 
this digital asset race to space share. This is why it is 
critical for the U.S. to stay competitive in this field to 
ensure that our values prevail as a way that the global 
financial system evolves.
    First, let me extend my congratulations to Dr. Lael 
Brainard on her confirmation as the Vice Chair of the Board of 
Governors of the Federal Reserve System. I am so happy you have 
joined us in this new capacity to discuss the potential of 
central bank digital currencies, or CBDCs, as part of the 
future of our financial and monetary system.
    Today, we continue the committee's bipartisan series of 
hearings on digital assets. This hearing will allow us to 
examine and discuss the Fed's ongoing research on CBDCs and to 
learn how the Fed is working with other Federal agencies, as 
encouraged by the White House in its recent Executive Order on 
digital assets, to ensure that the U.S. is properly regulating 
the cryptocurrency industry. While cryptocurrencies have the 
potential to offer several efficiencies in the way that we send 
and receive money, the early stages of innovation in this realm 
are revealing the clear risks associated with some 
cryptocurrencies, including significant volatility, even so-
called stablecoins, that again, I repeat, despite their name, 
have been anything but a stable value. Earlier this month, we 
saw, again, the dramatic collapse of Terra, which according to 
one analysis firm, resulted in investors losing more than $40 
billion in a product that was supposed to always return $1 for 
each dollar invested. And I am repeating all of this because I 
want it to be clear.
    And now, I will recognize the ranking member of the 
committee, the gentleman from North Carolina, Mr. McHenry, for 
5 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman, and Vice Chair 
Brainard, thank you for being here today as we seek to 
understand what problems a Fed-issued digital currency would 
solve. Despite this being our third hearing focused on CBDCs, 
and the Fed issuing its report, we still have many unanswered 
questions, but we knew that would happen. We all have to get a 
better understanding of the consequences of a central bank 
digital currency and understand the technical aspects as well.
    This is why prior to the reports released from the Fed, my 
Republican colleagues and I developed a set of principles to 
guide our evaluation of a U.S. central bank digital currency, 
or CBDC. For more than a year, we have been exploring the 
potential impact of a CBDC on monetary policy. We have been 
trying to understand the impact of the Fed's dual mandate and 
the implications for our banking system. Most importantly, we 
have been reviewing the Federal Reserve's current authority, if 
any, to issue a digital currency. Our principles provide a 
coherent framework to evaluate the Fed's report. In its report, 
the Fed listed a number of potential benefits of a CBDC, most 
of which, in my view, could be realized through private-sector 
alternatives. There seems to be a disconnect about how 
innovation truly happens, which is outside the walls of 
government bureaucracies.
    We also don't know the impact of a digital currency on the 
Fed's ability to effectively perform its monetary and 
regulatory functions, and we are trying to explore that and 
understand it better, and no one has made a compelling case on 
why we should expand the Fed's mandate into retail banking or 
how a Fed-issued CBDC won't politicize the Fed.
    I understand that this issue is obviously in its 
exploratory phase. However, there is the potential for 
significant harm to our financial system if we move forward 
without sorting through potential consequences. That is why 
last week, committee Republicans sent a letter to Chair Powell 
outlining exactly where the Federal Reserve should focus its 
next steps. Chair Powell has been outspoken in his view, 
stating, ``It is more important that we get it right, which 
means that we not only look at the potential benefits of a CBDC 
but also the potential risks, and recognize the important 
tradeoffs that have to be thought through carefully.'' And I 
strongly agree with Chair Powell's assessment.
    Chair Powell, in the discussion paper, emphasized that, 
``The Federal Reserve does not intend to proceed with the 
issuance of a central bank digital currency without clear 
support from the Executive Branch and from Congress, ideally in 
the form of a specific authorizing law.'' Since the job rests 
with Congress to make this decision, we should be thorough in 
our review. Congress should not rush to issue a digital 
currency, nor should the Fed. We both should understand whether 
the benefits of a digital currency actually outweigh the risks 
before any further congressional action is considered.
    Thank you, Madam Chairwoman, and I yield back.
    Chairwoman Waters. Thank you very much. I want to welcome 
today's distinguished witness, Dr. Lael Brainard, Vice Chair of 
the Board of Governors of the Federal Reserve System.
    You will have 5 minutes to summarize your testimony. You 
should be able to see a timer that will indicate how much time 
you have left. I would ask you to be mindful of the timer and 
wrap up your testimony before your time has expired.
    And without objection, your written statement will be made 
a part of the record.
    Vice Chair Brainard, you are now recognized for 5 minutes 
to present your oral testimony.

STATEMENT OF THE HONORABLE LAEL BRAINARD, VICE CHAIR, BOARD OF 
            GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Ms. Brainard. Chairwoman Waters, Ranking Member McHenry, 
and members of the committee, I am very pleased to join you 
today.
    There has been explosive growth in the digital financial 
system built around new digital assets and facilitated by 
crypto asset platforms with stablecoins as settlement assets. 
And in recent weeks, two widely-used stablecoins have come 
under considerable pressure. The recent turmoil makes it clear 
that the actions we take now, whether on regulations or on 
explorations surrounding a digital dollar, should be robust to 
the future evolution of the financial system. That rapid 
ongoing evolution of the digital financial system should lead 
us to frame the question not as whether there is a need for a 
central bank-issued digital dollar today, but rather whether 
there may be conditions in the future that may give rise to 
such a need. No decision has been made about whether a U.S. 
CBDC will be a part of that future. But it is important to 
undertake the necessary work to inform any such decision and to 
be ready to move forward, should the need arise. There are 
risks on both sides, both risks of acting and of not acting.
    The share of U.S. payments made by cash has already 
declined by one-third, to 20 percent just over the last 5 
years, and of course, the share is even lower for people who 
are under the age of 45. While digitalization of the financial 
system continues, it is prudent to consider how to preserve 
ready public access to safe central bank money. And that is 
where questions around the issuance of a digital dollar akin to 
the Federal Reserve's issuance of physical currency arise.
    In addition to the migration away from cash, we are also 
seeing growth in new forms of digital private money, such as 
stablecoins. They don't share the same protections that 
underpin confidence in commercial bank money, such as deposit 
insurance, access to central bank liquidity, and banking 
regulation and supervision. They can lose their promised value 
relative to fiat currency, harming consumers and creating 
broader financial stability risks, and, indeed, we saw in the 
19th Century that active competition among issuers of private 
paper banknotes led to instability, inefficiency, and fraud 
that was so widespread that it led to the need for a uniform 
national currency and, ultimately, the protections I just 
noted.
    In addition to consumer protection and financial stability 
risks, if private money such as stablecoins were to become very 
widespread, we could see fragmentation of the U.S. payment 
system into so-called walled gardens. In those kinds of 
circumstances, a central bank digital dollar could improve the 
stability and efficiency of the payment system by coexisting 
with and complementing stablecoins and commercial bank money, 
much like cash currently coexists with commercial bank money. 
It could provide a safe central bank liability as the neutral 
settlement layer in the digital financial ecosystem that would 
actually facilitate and enable private-sector innovation, but 
it is very important to consider the risk of bank 
intermediation. A vibrant, healthy banking system with banks of 
all sizes is very important to the economy and to the Federal 
Reserve. And in some circumstances, a widely-available CBDC 
could serve as a substitute for deposits, and a CBDC would be 
attractive to risk-averse users during times of stress. That is 
why we want to make sure that banks are among those 
intermediaries, if, in fact, we were to have such a system with 
intermediaries, which we have said is very important, and to 
develop design features to mitigate those risks.
    Finally, in addition to those two reasons, in future states 
where one or more major foreign currencies are issued in CBDC 
form, it is prudent to think about what the risks are in the 
presence or absence of a U.S. central bank digital dollar. And, 
of course, China's actions are important, but other central 
banks in Europe and elsewhere are also pretty far along in 
terms of thinking about issuing their own digital currency. And 
of course, we shouldn't take the dollar's global status as the 
dominant payment currency for granted.
    Thank you very much. I look forward to engaging with you on 
this important issue.
    [The prepared statement of Vice Chair Brainard can be found 
on page 44 of the appendix.]
    Chairwoman Waters. Thank you very much. I now recognize 
myself for 5 minutes for questions.
    Vice Chair Brainard, one potential benefit that the Federal 
Reserve highlighted in its January CBDC report was that a CBDC 
could support the dominant international standing of the U.S. 
dollar, and could help to ensure that our currency is 
positioned to remain the world's reserve currency and primary 
medium of exchange internationally in this digital age. The 
report noted that, ``Today, the dollar is widely used across 
the globe because of the depth and liquidity of the U.S. 
financial markets, the size and openness of the U.S. economy, 
and the international trust in United States institutions and 
the rule of law. It is important, however, to consider the 
implications of a potential future state in which many foreign 
countries and currency unions may have introduced CBDCs.''
    Some advocates have noted that if foreign CBDCs become more 
widely used than existing forms of the U.S. dollar, the global 
power of our currency could decrease. As you look at the CBDC 
development in China and elsewhere, do you think that a U.S. 
CBDC is essential to preserve the international role of the 
dollar?
    Ms. Brainard. Thank you, Madam Chairwoman. I think this is 
one of the important considerations informing the work to 
better understand the design and potential importance of a 
digital dollar. We do derive important benefits from being the 
dominant payments currency. It does lower our borrowing costs 
and our transaction costs, and that does flow through to 
businesses and consumers. So, it is very important for us to 
retain a dominant position in international payments, and as 
you noted, China has already introduced a digital yuan. The ECB 
is pretty far along in its thinking. If a number of major 
foreign jurisdictions do, in fact, issue digital currencies, it 
is important to think how that would look for the dollar if the 
U.S. did or did not join that.
    Regardless of whether or not the decision is made to move 
forward, it is very important for us to be involved in standard 
setting in cross-border transactions. And of course, our 
ability to shape those standards will be influenced by whether 
or not we actually have a digital offering to bring to the 
table as well.
    Chairwoman Waters. Thank you very much. I just want to ask 
you about the President's direction. It seems that he said that 
all of these agencies should work together. And we talked with 
Mr. Xu just yesterday, and he said there has been no real 
discussion on CBDCs. Is that true?
    Ms. Brainard. The Executive Order on digital assets does, I 
believe, include an important role for Treasury in bringing 
together the banking agencies to discuss the issue of a central 
bank-issued digital dollar. So, I do think it will be very 
important for Treasury to convene those discussions and, of 
course, we look forward to fulfilling our role under the 
Executive Order.
    Chairwoman Waters. But it has not happened yet. Is that 
right?
    Ms. Brainard. It has not happened yet, to the best of my 
knowledge, but we are working with other agencies on the 
Executive Order and we do expect to have discussions convened 
by Treasury.
    Chairwoman Waters. Thank you very much. The gentleman from 
North Carolina, Mr. McHenry, who is the ranking member of the 
committee, is now recognized for 5 minutes.
    Mr. McHenry. Thank you, Madam Chairwoman. Vice Chair 
Brainard, you obviously are very steeped in the details of the 
mechanics of a CBDC. We have seen the MIT report. We have seen 
the Boston Fed report. We have seen the overall Fed report on 
CBDCs. The one thing that the Federal report makes clear is 
that legislation is necessary for the Fed to issue a central 
bank digital currency. Is that your view?
    Ms. Brainard. Ranking Member McHenry, the report is clear 
that the Federal Reserve would not move ahead without support 
by the Executive Branch and by Congress, and ideally, that 
would take the form of authorizing legislation.
    Mr. McHenry. Yes, I mentioned that in my opening statement, 
and that was my question. I was asking your view.
    Ms. Brainard. Of course, I don't have any expertise on what 
kind of authorizing legislation would be necessary, but I think 
our view as an institution was clearly stated.
    Mr. McHenry. You are the Vice Chair for Regulation, and I 
just want to ensure that it is your understanding that the Fed 
is constrained by statutes, and that is why I am asking. This 
is not supposed to be a hard question. It is supposed to be the 
easy opener.
    Ms. Brainard. Yes. It is clear that the Federal Reserve 
does not have the authority, for instance, or is precluded from 
individual accounts, so we have taken a very strong position on 
that in the report. And, yes, it is important for us to have 
strong support from both the Executive Branch and Congress, and 
ideally, that would come in the form of authorizing 
legislation.
    Mr. McHenry. Okay. I think you will hear from me on this, 
because it seems like there is some wiggle room you are trying 
to show. Let me move on to my question, if I may. What specific 
problems, if any, will a central bank digital currency solve?
    Ms. Brainard. I think this is a very important question and 
set of considerations. And the way that I think about it is 
that it is really the future states of the financial system 
that we should be thinking about as we think about the costs 
and benefits. There are potential risks to creating a CBDC, 
depending on the future evolution of the financial system. 
There are also potential risks to not having a CBDC, and what 
is really important is that it takes a long time. If, for 
instance, Congress were to decide that it is very important for 
the Federal Reserve to issue a central bank digital currency, 
it could take 5 years to put in place the requisite security 
features, the design features. And I cited earlier the enormous 
changes that have taken place in our financial system just over 
the past 5 years, a one-third decrease in the use of cash, a 
huge amount of migration to mobile apps for payments in and out 
of the banking system, an introduction by several foreign 
central banks of their own digital currencies and plans by 90 
percent--
    Mr. McHenry. Okay. I understand. And my question is, what 
problem are we trying to solve for, and I have not gotten a 
clear answer on this. For most consumers, payments are digital. 
The movement of cash between banks is digital. In the private 
sector, we see the payment system working well. We see the 
FedNow system is expected to go live in 2023. So, what are the 
differences here from all of those alternatives, and why would 
the Fed need to have a CBDC?
    Ms. Brainard. There are three reasons that I cited earlier, 
including the declining use of cash. Potentially, consumers no 
longer having direct access to a safe, central bank-issued 
digital currency is one significant risk. A second significant 
risk is that stablecoins become the dominant form of U.S. 
digital dollar. And in that world, you could have fragmentation 
of the payment system, instability of those digital currencies, 
the kind of instability that Congress chose to move away from 
100 years ago.
    Mr. McHenry. Thank you, Vice Chair. And, Madam Chairwoman, 
thank you for this hearing. I think this is the reason why we 
need to have a well-regulated stablecoin regime, or to at least 
have a conversation. Thanks so much.
    Chairwoman Waters. Thank you. The gentleman from Missouri, 
Mr. Cleaver, who is also the Chair of our Subcommittee on 
Housing, Community Development, and Insurance, is now 
recognized for 5 minutes.
    Mr. Cleaver. Thank you, Madam Chairwoman. And Vice Chair 
Brainard, thank you so much for being with us today. I 
appreciate it very much. As you well know, the Federal Reserve 
Bank of Boston has partnered with MIT to conduct CBDC-related 
research through Project Hamilton. Together, they have studied 
the technological aspects of a potential CBDC, and it was going 
to be hard because I would say, ``CDBG,'' all the time in my 
committee, but CBDC, with the first phase of the project 
released in February 2022, which looks into cryptography, 
distributed systems, and blockchain technology. Some have 
argued that existing American digital initiatives for real 
payment time, such as Pay It Now, will likely have slower 
settlement times when compared to Project Hamilton or the CBDCs 
being developed by other nations.
    What is your view? Is there a Fed view? What is the Fed 
likely to do now? Will your study be laid out to us and to the 
Senate? We are, of course, very much interested in any 
sensible, well-studied work that will help us deal with this 
issue. That is scary, at least to me. It is frightening to me. 
So, what will happen with the research?
    Ms. Brainard. Thank you. The work that we are doing now on 
FedNow is on a real-time payments platform. It is the first 
system that we are building that is cloud native. And I think 
that we are learning a lot about the cyber security 
requirements, potential settlement times, and the execution 
requirements, so it is a very important build experience for 
us. And it is also, I think, a good example of how long it 
takes from the time that the decision is made to build such a 
new platform, to the time when it is ready to be connected up 
to financial institutions.
    There is relevance there for a central bank digital 
currency. And as you noted, we have a variety of research 
around the system that is potentially relevant both to what it 
would take to execute on a digital dollar issued by the Federal 
Reserve, but also relevant to simply understanding some of the 
private-sector platforms that have stablecoins or are building 
stablecoins. It is very helpful to us, for instance, to Project 
Hamilton, to experiment with what kind of throughput, what kind 
of settlement times, how many transactions per second you might 
be able to see when you layer on the kind of cryptography that 
is necessary to make these transactions secure and private.
    So, I think the work that we are doing helps give us some 
background, and it is very important for us to continue with 
technological research and experimentation, not only for 
purposes of our own payments infrastructure, but more broadly, 
to understand the private sector and where some of the risks 
may lie and where some of the efficiencies may lie.
    Mr. Cleaver. Do you believe that the Fed will likely have 
slower settlement times when compared to Project Hamilton or 
the CBDCs?
    Ms. Brainard. I would be a little hesitant to compare 
simply because Project Hamilton is entirely experimental in 
nature. And of course, with FedNow, we are building in very 
significant operational resilience and security. And so, I 
would be a little cautious about thinking about settlement 
times comparably between those two.
    Mr. Cleaver. Madam Chairwoman, I yield back the balance of 
my time.
    Chairwoman Waters. Thank you very much. The gentleman from 
Florida, Mr. Posey, is now recognized for 5 minutes.
    Mr. Posey. Thank you very much, Chairwoman Waters. Dr. 
Brainard, if working people got paid in central bank digital 
currency, could it threaten the viability of commercial banks 
using deposits to fund their lending activities?
    Ms. Brainard. One of the things that I have focused most on 
in thinking about this debate is how important it is to our 
economy, and to the Federal Reserve, to have a vibrant, 
resilient banking system with banks of all sizes, and we want 
to make sure anything we do continues to support that really 
important banking system. As we think about some of those 
issues, I think one thing that is important to recognize is 
that anything that we would want to do in this space would have 
to be consistent with banks remaining really important 
intermediaries of any future evolution of the U.S. payments and 
financial system. And that is one of the reasons that we 
emphasize in our report that it should be an intermediated 
system with banks as intermediaries or among intermediaries.
    In terms of the deposits, there is certainly a lot of 
consideration that we have been doing in terms of thinking 
about potential implications for deposits. Banks are very 
important in terms of credit provision, in terms of monetary 
policy transmission. Of course, we are already seeing massive 
changes where payments are made increasingly through mobile 
payments apps. We have seen a tenfold increase of the leading 
mobile payments app, a sevenfold increase just in the last few 
years of the second mobile payments apps. Those already hold 
balances largely outside the banking system.
    Similarly, we have seen those having some implications for 
cash usage. So, I think any future evolution of the financial 
system with digitalization is going to lead to some diminished 
use of cash and some diminution of bank deposits, but that is 
also true for stablecoins. You could see some reduction in bank 
intermediation and bank deposits there, so I think we want to 
think holistically about it. And it is very important to think 
about limits, potential limits on central bank digital currency 
holdings, whether to pay interest. That would be another way to 
make holdings of central bank digital currency really only for 
payments in ways that wouldn't compete with deposits, if for 
instance, they didn't pay interest. There are a variety of ways 
people have been thinking about designing these so that they 
wouldn't diminish deposits in the banking system.
    Mr. Posey. Thank you. Do you think the interest rate of a 
central bank digital currency could increase the threats to 
diminishing the role of the banking system in our economy as we 
currently know it?
    Ms. Brainard. I think that question about whether or not a 
central bank digital currency would be interest bearing is a 
really important one. I think there are a variety of reasons to 
think it would be probably preferable not to have an interest-
bearing digital currency. And I think the one that you 
mentioned is one of the most compelling reasons; it would be 
less attractive than deposits if it were not interest bearing. 
And of course, consumers are accustomed to making payments on 
mobile apps without interest on those balances. In that sense, 
it seems like a natural way to go to me, but it is one of the 
design questions that our paper raises and that we asked for 
feedback on in the comments.
    Mr. Posey. Thank you very much. Madam Chairwoman, I see my 
time is just about to expire, so I yield back. Thank you.
    Chairwoman Waters. Thank you very much. The gentleman from 
California, Mr. Sherman, who is also the Chair of our 
Subcommittee on Investor Protection, Entrepreneurship, and 
Capital Markets, is now recognized for 5 minutes.
    Mr. Sherman. Thank you. CBDCs will not meet the primary 
need that is aspired to be met by cryptocurrencies. With 
cryptocurrencies, the name tells you everything--``crypto'' 
means hidden, and ``currency'' is money--and it is designed to 
meet the needs of those who need hidden money: drug dealers; 
sanctions evaders; human traffickers; and especially, tax 
evaders. And I don't think that a central bank digital currency 
will help those folks because you are going to enforce the Know 
Your Customer and Anti-Money Laundering (KYC/AML) rules. There 
is a second need that is met by cryptocurrencies and those who 
may not care whether they hide their own money, but they want 
to heap high-risk investment wagers on whether other people 
will want hidden money and bid the price of cryptos up.
    Mr. McHenry asked what a CBDC could do, and I would point 
out that accounts of over a quarter million dollars are not 
insured by the Federal Government. So if you want an account, 
rather than in, say, T-bills, you could buy it, then sell it, 
then use the money, but you want in the account money, and you 
want to take zero risk, and you have more than a quarter 
million, CBDCs could do that. But there will be a disadvantage 
that I think Mr. Posey identified in his question.
    Governor Brainard, given your role at the Fed, it is 
logical that you would focus on digital currencies, but I also 
want to tap your knowledge about stablecoins. We have seen that 
Terra was not, ``terra firma.'' It was, ``terra incognita.'' We 
see that Tether is completely untethered. I am concerned 
particularly that Tether's investors are being told it is 
linked one-to-one with immediately-redeemable cash reserves. We 
don't really have reliable financial statements, no, that there 
are any reserves at all, but if we take it at face value, the 
release is out of Tether. They own commercial paper 
cryptocurrencies, which could go up or down on any day, and a 
lot of investments in the notes of Chinese real-estate 
companies, which are highly impaired.
    Earlier this month, the Treasury Secretary testified about 
the need for Congress to take action, and laid out a framework 
for doing so. Congress is somewhat divided, as you may have 
heard, so we may not be able to pass anything. Is there 
anything you can do or that the regulatory agencies can do to 
protect those who think they are buying something stable and, 
in fact, they are buying anything but?
    Ms. Brainard. I have certainly been very focused on the 
potentially unstable nature of the so-called stablecoins for 
some time, and I do think the first best answer would be for 
Congress to specifically legislate a regulatory regime for 
stablecoins. I do believe we have just seen, in the last few 
weeks, exactly the kinds of risks that we have all been talking 
about for some time: a run on the platform; a collapse in the 
value of a stablecoin; a stablecoin breaking the buck or moving 
off of its one-for-one value because of lack of transparency 
into the reserve assets and supposedly underlying that 
stablecoin. All of those things we have all been talking about, 
and that is why I think the President's Working Group 
principles for regulating are good, and it would be best to 
first see some legislation there. There are consumer protection 
risks. There are investor protection risks. There are 
financials that involve risks.
    Mr. Sherman. I am going to sneak in one more question. I 
think Mr. Posey brought this up. We tend to focus on the 
financial services system, but the real impact is what impact 
financial services then has on the real economy. We want 
business loans made. We want home loans made. If we had a CBDC, 
would that cause deposits to move out of banks, particularly 
community banks and credit unions, and into the Fed in a way 
that would provide less money available for the loans we want 
banks to make?
    Ms. Brainard. I think with the right design features, that 
could be avoided. Again, we already have payments apps that 
would operate quite similar to central bank digital currencies, 
so the financial system is already moving in that direction. 
And simply doing things like not having interest on a digital 
currency potentially limits how much people could hold. It 
would confine their use to payments and not impede those 
important functions of a vibrant banking system. And of course, 
again, it is really important for banks to be intermediaries in 
any such future system.
    Chairwoman Waters. Thank you. The gentleman from Missouri, 
Mr. Luetkemeyer, is now recognized for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman. Good morning, 
Vice Chair Brainard. I just want to kind of get a little bit of 
clarity here. You keep saying that the Fed will move forward, 
but you are not moving forward without congressional approval, 
ideally in the form of legislation. That is kind of a hedge 
there that I am concerned about. Do you or do you not believe 
that we have to have legislation? And if you don't believe we 
have to have legislation, what other forms of a nod toward 
approval would you accept--some sort of a letter from the 
Administration, from Congress, a Floor speech on the lack of 
action, for instance? Would that imply that everything was 
okay? Can you give me a little more definitive answer on this, 
please?
    Ms. Brainard. Let me just repeat what we have said, that 
the Federal Reserve discussion paper that was released in 
January said that the Federal Reserve would not move forward 
without strong support from the Executive Branch and from 
Congress, ideally in the form of authorizing legislation. And 
of course, I think that was--
    Mr. Luetkemeyer. That is what I want to clarify, ideally 
here. Is that the only form that you could you go forward with 
or are there other things, other ways that you would consider 
approval from Congress or the Administration? I want to nail 
this down. What do you think it takes to make this happen?
    Ms. Brainard. I believe in the Executive Order on digital 
assets, the Department of Justice has the responsibility for 
opining on this topic. Others who are lawyers probably are 
better placed to give you a very precise answer. I can tell you 
that we believe that Congress should be very engaged on this 
issue. That is why I am so delighted that you are holding this 
hearing today. There are a lot of really important questions 
that I think you are asking here, and our job is to make sure 
that at least the part of this that I think I have some 
responsibility for is to make sure any decision that you make 
is well-informed. That is why we put out the discussion paper. 
That is why we think it is important to have technology 
research. I would hate for Congress to decide 5 years from now 
that the Federal Reserve needs to catch up. China is out there. 
The ECB is out there. And we would be serving you very poorly. 
We have done a lot of work.
    Mr. Luetkemeyer. Okay. Thank you. Along that same line, you 
have opened up another question for me here with regards to 
other countries--China, Europe, UAE--that are acting in the 
space. And the Fed is thinking about doing something with, I 
guess, consent and approval, with direction from the Congress 
and from the Executive Branch. My question is, do you think 
that you can move fast enough to be able to compete with these 
other currencies? And if not, do you think that the private 
sector, which I think we have all agreed can innovate and do 
this much more quickly, that if you worked in concert with them 
or turned them loose with the innovation that they could come 
up with, may be able to make us more competitive, more quickly?
    Ms. Brainard. In any circumstance, we operate alongside the 
private sector. That is true of all of our payment systems that 
we operate today. It is true of the coexistence of cash and 
central bank money, and that is one of the great strengths of 
our system. In any circumstance, I would think of the central 
digital dollar as creating a neutral settlement layer that 
would actually allow our private sector to innovate more 
effectively and more rapidly. And if I think about where other 
countries are by doing the kind of technology research and 
policy research and soliciting input today, I am hoping that 
we, working with the private sector, can be in a good position.
    Mr. Luetkemeyer. Can you give me an instance of how you are 
working with them? How are you working with the private sector?
    Ms. Brainard. In all of the work that we do, we have 
private-sector partners. In FedNow, for instance, we have a 
group of private-sector partners that have helped inform the 
design of our system, and, of course, all of our payment 
infrastructure is kind of a neutral infrastructure that allows 
interoperability between private-sector solutions. And that is 
how I would continue to see the role of the Federal Reserve in 
the future.
    Mr. Luetkemeyer. Okay. Thank you. I see my time is up, so I 
yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you. The gentleman from 
Connecticut, Mr. Himes, who is also the Chair of our 
Subcommittee on National Security, International Development 
and Monetary Policy, is now recognized for 5 minutes.
    Mr. Himes. Thank you, Madam Chairwoman, and thank you very 
much, Dr. Brainard, for your presence here.
    As the chairman of the subcommittee that has jurisdiction 
over the possibility of a CBDC, I am really excited that we are 
having this conversation, and I am deeply appreciative of the 
work that you have done, and I am appreciative of the 
Minority's engagement here. I studied their letter of May 18th, 
and I want to make some observations and maybe get your view on 
some of this. Just for the record, the Minority is very focused 
on the statutory authority. I think it would be very wise, 
whatever the legal niceties are, for the Fed to move forward 
with statutory authorization because this is a big deal.
    But I want to make an observation. The Minority has accused 
you of failing to identify the payment system inefficiencies. I 
think I am quoting them right in their letter. They write about 
identifying the problems in the current payment system. That is 
not a hard question to answer, Dr. Brainard, right? There are 
still millions of Americans who don't feel comfortable using 
commercially-backed payment systems. They tend to be 
immigrants. They tend to be lower-income people. That is 
correct, isn't it?
    Ms. Brainard. Yes.
    Mr. Himes. Yes, and I suspect that is always going to be 
true, and, look, I think it is important for them to have the 
option to do it. But there is something unique about the full 
faith and credit of the United States Government, and that is 
why, of course, people use physical currency.
    I also want to spend a moment--I was a technology banker 
back in the 1990s, and I watched the internet develop. And the 
truth is that in the mid-1990s, we had no idea what the 
internet was going to be. We had no idea in the late 1990s that 
someday the internet would enable your refrigerator to text you 
at your office to tell you that you needed more milk. We didn't 
dream of that. I am not sure that we wouldn't have looked at 
travel agents and said, that is a clearly inefficient system, 
at the time. My point is that we just don't know, but we would 
be making a terrible mistake if we stood in the way of 
innovation because the problems of today don't actually 
indicate where this may go.
    The second issue I want to maybe get your agreement on, 
too, and I worry about the Minority, sort of, because I think 
the outcome here is one in which the Federal Government, the 
Federal Reserve provides a foundation upon which the private 
sector innovates in a big way. The government should not 
squeeze out the private sector.
    But I wave this thing around a lot. This is the iPhone that 
I use. We are all enslaved to these things. But this is the 
metaphor for what we are doing because this thing is made by a 
private company. It has apps, and semiconductors, and all sorts 
of things that have created immense wealth in the private 
sector. But this thing is cool because decades ago, the Federal 
Government invested a huge amount of money in semiconductor 
research. It is pretty cool because when the Federal Government 
created the Advanced Research Projects Agency Network 
(ARPANET), in the Advanced Research Project, they didn't see 
that it would lead to the internet. The only reason location 
services work on this device is because the United States 
Government maintains 31 global positioning satellites above our 
heads.
    And the reason I tell that story is because this is the 
story of innovation. You can call it a partnership. You can 
call it a foundation that the government sets up that the 
private sector builds on. But it is really important that we 
remember that is the nature of innovation because, look, I am a 
general cryptocurrency skeptic here, but I don't ever want to 
do something, including demanding use cases that are very, very 
specific at a time when we could find ourselves at a 
competitive disadvantage.
    So, Dr. Brainard, I worry about this. If we wake up 6 
months from now and the EU has created a digital CBDC 
equivalent of the Euro, or if the British have developed a CBDC 
sterling and their private sector in Europe is innovating on 
top of that foundation, could we find ourselves at a real 
innovative disadvantage?
    Ms. Brainard. Yes.
    Mr. Himes. And you talked about this before, but if that 
happens, and the apps that get built on a euro or a sterling, 
CBDCs are really attractive, is it possible that around the 
world, people would migrate away from the dollar as not just a 
reserve currency, but as a used currency?
    Ms. Brainard. I think it is, yes.
    Mr. Himes. So, there is a very real risk to our traditional 
position as an innovator if, by having some ideological split 
that doesn't exist between the government and the private 
sector, we allow--I don't worry so much about China; who is 
going to trust the Chinese digital currency?--Europe, or the 
U.K., or someone else to move ahead of us. There are some 
really important risks, and you have highlighted them, 
associated with a CBDC. We do not want to disintermediate the 
banking system. We don't want to create a flight to quality and 
panicked moments. But is it possible that an intermediated 
system like you called for with wallets that perhaps are held 
in the private sector, but which are capped in the amount that 
one can hold and that perhaps are not interest bearing, can you 
sort of conceive of a structure like that which really creates 
no risk for the existing financial services system?
    Ms. Brainard. Certainly in the research that we have done 
and the paper we put out, it is those caps, the lack of 
interest that would help to protect the banking system from any 
disintermediation of deposits.
    Chairwoman Waters. Thank you.
    Mr. Himes. Thank you, Dr. Brainard. My time has expired.
    Chairwoman Waters. The gentleman from Kentucky, Mr. Barr, 
is now recognized for 5 minutes.
    Mr. Barr. Thank you, Madam Chairwoman, and Vice Chair 
Brainard, thank you so much for your insights into this 
important topic.
    I wanted to follow up on Ranking Member McHenry's and 
Congressman Luetkemeyer's questions about the need for 
congressional authorization. You reiterated that your January 
report states that the Fed would not issue a CBDC without 
congressional authorization. In that report, the Fed committed 
to moving forward with a CBDC only with clear congressional 
support, ``ideally in the form of a specific authorizing law.'' 
You have reiterated that today.
    But I want to get into this Executive Order that you 
mentioned in response to Congressman Luetkemeyer. That March 
9th Executive Order requires the Attorney General, in 
consultation with the Secretary of the Treasury and the Chair 
of the Fed, to provide an assessment of whether legislative 
changes would, in fact, be necessary to issue a central bank 
digital currency should it be deemed appropriate and in, ``the 
national interest.'' This, to me, suggests that the 
Administration is not yet convinced that Congress has a role 
here.
    Tell us how the Fed is coordinating with Treasury on this? 
And if Treasury and the Attorney General take the position that 
congressional authorization is not necessary, will you, 
Chairman Powell, and your General Counsel, Mr. Van Der Weide, 
commit to pushing back to protect the important role of 
Congress?
    Ms. Brainard. I appreciate the question. I can certainly 
say that you are right, that is what the Executive Order asked 
for. No, I have not been engaged in any of those conversations, 
but, of course, that is not my expertise, so it would not be 
likely. But I believe that there have been some staff-level 
discussions between the Federal Reserve, the Department of 
Justice, and Treasury, and, of course, I don't know where those 
discussions are going to go. So, the kind of hypothetical 
circumstance that you mentioned is very hard for me to 
speculate on.
    Mr. Barr. What I think Congress is expecting, and I hear 
some bipartisan support for this from Mr. Himes, is that your 
General Counsel, and Chairman Powell, as the Executive Order 
requires to coordinate with the Attorney General, take the 
position you are taking here today, that congressional 
authorization is required, and we will be following up with you 
on that.
    Let me let me follow up on this deposit substitution 
concern about a CBDC. You mentioned that a key objective of a 
CBDC is to promote financial inclusion. You are hearing concern 
today that this actually might compromise access to credit, 
that a CBDC would compromise access to credit, especially in 
rural, community bank-dependent areas like my district, that 
moving deposits off of bank balance sheets may be harmful to 
the very people we are trying to help. Talk about that a little 
bit more. And as you do, I will just quote the Fed itself: ``A 
widely-available CBDC could serve as a closed substitute for 
commercial bank deposits or other low-risk assets, such as 
government, money market funds, and Treasury bills. A shift 
away from these assets could reduce credit availability or 
raise credit costs for households, businesses and 
governments.''
    Ms. Brainard. Let me just start by saying that I am very 
focused on the role of community banks in rural communities, 
and the really important and unique role they play in providing 
credit, in particular, to small businesses and to communities 
there. So, it is a very important link to financial inclusion 
for rural communities, and I certainly care a lot about making 
sure that our community banks are vibrant.
    Mr. Barr. Can I reclaim my time quickly, and get to your 
point about intermediation and caps, because I know that is 
your solution. But I worry that a CBDC, even an intermediated 
CBDC, where the caps are capped at $5,000 per end-user, would 
still result in $720 billion in deposits leaving the banking 
system. And that would, in fact, impact community banks the 
worst because 46 percent of community bank deposit accounts 
have less than a $5,000 balance.
    Ms. Brainard. I think what you can already see today is 
that there is a big migration of consumers, particularly young 
consumers, to mobile apps for payments, particularly for peer-
to-peer (P2P) payments. We have just seen a tenfold increase 
just over the last few years alone in those balances that are 
already not being held in community banks. If you saw 
stablecoins being prominent in payments, that would also lead 
to migration. So, I think we need to think broadly about the 
future of community banks and the vibrancy of deposit holdings 
in a world that is rapidly digitizing on payments. And of 
course, as you noted, any system, any design considerations 
would include a prominent role for banks of all types as 
intermediaries. And we certainly have been thinking a lot 
about, are there kinds of restrictions, like no interest 
payments, restricted caps, that would help guard against risks 
in moments of instability?
    Mr. Barr. How does the intermediary--
    Chairwoman Waters. Excuse me. The gentleman's time has 
expired.
    Mr. Barr. So many questions. Thank you.
    Chairwoman Waters. The gentleman from Illinois, Mr. Foster, 
who is also the Chair of our Task Force on Artificial 
Intelligence, is now recognized for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman. There has been 
some discussion here about what problem this might be solving. 
And if everyone had access to either a Fed account or Fed bank 
stablecoins, which were widely used for consumer and commercial 
payments at negligible cost, roughly how much would vendors and 
consumers save in credit card fees?
    Ms. Brainard. I don't have a specific estimate for you, but 
certainly, transaction costs are very high currently as we know 
from--
    Mr. Foster. If you could get back to me with an estimate, I 
would appreciate it, because that is a big potential consumer 
benefit.
    Now, it seems to me the first, safest step here would be 
stablecoins issued by a regulated financial institution that 
were 100-percent backed by Fed Reserves. That seems like the 
safest thing you can imagine. And the main thing that would be 
required for this to happen is that the Fed would provide an 
Application Programming Interface (API) to verify in real time 
the reserve account balances so that any time anyone was going 
to mint a stablecoin, the minting process could not complete 
until the Fed had verified that the updated account balance 
was, in fact, on reserve. It seems like, technically, this 
should be a fairly straightforward thing, and I wouldn't be 
surprised if the parts were already in place in the regulated 
financial system to make that happen. This approach would also 
neutralize any monetary effects of changing stablecoin 
balances. So it seems, from that point of view, it would be a 
pretty safe thing.
    What would be the residual dangers in an initial approach 
like this, and is this really a project that would take 5 
years?
    Ms. Brainard. Of course, private stablecoins could and are 
growing in usage every day, and so, what would be different? 
First, as you say, an entirely reserve-backed stablecoin with 
very strong regulations and guardrails around it would mitigate 
some of those financial stability risks. It would not mitigate 
risks of fragmentation of the payment system or of walled 
gardens. And that is another really important aspect, I think, 
of thinking about whether you want a neutral settlement layer 
that might underpin a variety of stablecoins and other private, 
innovative solutions. And fragmentation of the payment system 
is costly. As we know from previous periods, when it makes it 
difficult to move from platform to platform, it introduces 
large inefficiencies.
    Similarly, if you think about the cross-border case, and, 
in particular, the cross-border wholesale case, where I think 
banks are particularly focused as potentially lowering 
transaction costs, there, too, you would either have a large 
number of stablecoins, in which case you might have some 
fragmentation and inefficiencies, or you end up potentially 
with one very concentrated stablecoin which would require even 
more regulatory oversight. And, of course, any special 
stablecoin would lead to the same kind of disintermediation 
risk as a central bank digital currency.
    Mr. Foster. Okay. In your testimony, you highlighted the 
fact that the discussion paper indicated that a Fed-issued CBDC 
would best serve the needs of the United States by being 
privacy-protected, intermediated, widely transferable, and 
identity-verified. You mentioned that you would also need 
legislation to proceed with CBDCs. Do you also feel that you 
would need legislation on the digital identity front to make 
this a realistic possibility? Is that a necessary part of any 
CBDC program? Are the standards in place already sufficient for 
that?
    Ms. Brainard. I would say two things there. One, we talk 
about trying to strike that balance between privacy and 
identity verification by leaning on the current system that we 
have with banks as intermediaries where banks are responsible 
for verifying identities, and consumers, as a result, have 
privacy. There is no direct visibility into consumer 
transactions on the part of the government. But you are asking 
a broader question about digital identities, and that is really 
outside the purview of what the Federal Reserve is 
knowledgeable about or responsible for. And I think it is a 
much broader and very important question.
    Mr. Foster. Okay. If you could just let us know who is 
actually carrying the ball, I would appreciate it.
    Chairwoman Waters. Thank you.
    Mr. Foster. Okay. Thank you. I yield back.
    Chairwoman Waters. The gentleman from Arkansas, Mr. Hill, 
is now recognized for 5 minutes.
    Mr. Hill. Thank you Chairwoman Waters, and, again, my 
congratulations, Dr. Brainard, on your new position as Vice 
Chair for Regulation at the Fed.
    This committee's work on digital assets has been one of the 
bright spots in recent years, and I thank our members for their 
hard work. I think our committee is among the best-informed 
Members of Congress on the subject of digital assets, and that 
is due to the strong bipartisan engagement on that over the 
past few years. And I particularly appreciate the work of the 
ranking member and of the chairwoman of the committee and for 
working on a bipartisan basis here.
    I have been urging full consideration of the central bank 
digital currency, or CBDC, for about 3 years now. And last 
year, I introduced with my friend from Connecticut, Mr. Himes, 
the 21st Century Dollar Act to make sure that the U.S. 
Government has a strategy to maintain the dollar as the primary 
global reserve currency now and well into the future, with or 
without a central bank digital currency.
    And in 2019, Congressman Foster and I authored H.R. 2211, 
the Central Bank Digital Currency Study Act, which directed the 
Fed's Board of Governors to study a potential CBDC, and its 
impact on consumers, businesses, monetary policy, and the U.S. 
financial system. And while that bill hasn't passed, we are 
here today talking about precisely that kind of a study, so I 
am delighted to see the work by the Fed, both with the private 
sector and MIT to conduct this study. And I was also pleased 
that I think I heard Dr. Brainard confirm that they would not 
issue a central bank digital currency without clear legislation 
from Congress, so I thank Mr. Himes and Mr. Foster for working 
with me on these issues.
    In thinking back, looking at the Fed's report, one quote 
stood out to me: ``The Federal Reserve Act does not authorize 
direct Federal Reserve accounts for individuals, and such 
accounts would represent a significant expansion of the Federal 
Reserve's role in the financial system in the economy.'' Dr. 
Brainard, just confirming with you, you stand by that and you 
don't support direct consumer accounts at the Fed. Is that 
correct?
    Ms. Brainard. Yes, I think our statute is clear on that.
    Mr. Hill. Thank you. And it seems like a clear indication 
to me, also, that the Fed understands that if a CBDC were to be 
created here in America, it should be intermediated through the 
private sector. Whereas companies, not the government would 
offer these accounts and digital wallets to facilitate the 
management of CBDC holdings and payments and innovations, that 
would be also reserved for the private sector. Is that also, 
again, your confirmation today?
    Ms. Brainard. Yes.
    Mr. Hill. Yes. We have been talking a lot about consumer 
benefits, about payments being reduced in fees, for example, in 
offshore dollar exchanges like MoneyGram and things like that, 
which was a big part of our hearing a few years ago with Libra 
and Facebook. But I wouldn't call current digital asset 
transfers on blockchains cheap. Would you say it is inexpensive 
now to do that?
    Ms. Brainard. Yes, the numbers I have seen are actually 
quite expensive.
    Mr. Hill. Yes. And also settlement times are long, are they 
not, compared to if I use my debit card at the Longworth 
cafeteria and debit my account through Visa Debit, blockchain 
settlement times are also not instantaneous. Is that not 
correct?
    Ms. Brainard. That is correct.
    Mr. Hill. Yes. So, there are operational issues that we 
have, as you say, a lot of work to do before we just 
instantaneously think this is going to be successful. Are you 
testifying in a general way that you really prefer a CBDC over 
a stablecoin innovation regime? Is it unfair for you to say 
that is your view, or is that a fair way to describe it? Do you 
actually prefer a U.S. Government-issued CBDC through an 
intermediary overseen by the Government versus a number of 
stablecoins?
    Ms. Brainard. No, I really see the potential for a digital 
dollar as being complementary to a more stable, efficient 
system that would include stablecoins and commercial bank 
money. So, I really see them as potentially enabling private-
sector innovation and being fully complementary. And, of 
course, just to your earlier question on blockchain, obviously 
blockchain has some real inefficiencies associated with the 
proof of work. The way that it verifies any kind of ledger with 
a central permissioned authority like a central bank wouldn't 
have those kinds of inefficiencies on settlement.
    Mr. Hill. Thank you, Dr. Brainard. And, Madam Chairwoman, I 
have some additional questions I will submit for the record.
    I yield back.
    Chairwoman Waters. Thank you. The gentleman from Georgia, 
Mr. Scott, who is also the Chair of the House Agriculture 
Committee, is now recognized for 5 minutes.
    Mr. Scott. Thank you, Madam Chairwoman. Dr. Brainard, I am 
also, as the Chairwoman said, the Chair of the House 
Agriculture Committee, in addition to being a senior member on 
this Financial Services Committee, for 20 years. And it has put 
me in the pivot of the two essential things that we cannot 
survive without: access to food; and access to money. So, let 
me share with you why I am worried, because we have unbanked 
and underbanked people who don't have access to the 
infrastructure of our financial system. I am also worried and 
concerned about the failure of us having financial education to 
educate people. We are making drastic moves with this 
cryptocurrency and the subject we are addressing today.
    Let me ask you this, so you can address my concerns. How 
would a Fed-backed digital currency address the various reasons 
that our low-income consumers say why they are unbanked? They 
say specifically that they have a lack of physical branches in 
their communities. What role would that be? They say they have 
minimum balance requirements, and then also this general 
distrust of our financial system. How do you address that? You 
made a statement in your report. You said that a central bank 
digital currency could have helped millions of unbanked and 
underbanked Americans during the pandemic. You suggested that 
if the Federal Government had the option of providing digital 
cash, people without a bank account could have received relief 
payments faster and more efficiently. How can you back that up, 
ma'am?
    Ms. Brainard. I think the reasons that you noted are the 
reasons that we see in our surveys, in FDIC surveys, why more 
than 5 percent of our population doesn't have a bank account, 
and that does include cost-related concerns, first and 
foremost, such as minimum balance requirements and 
unpredictable or high fees, as well as lack of trust, and, as 
you also noted, lack of convenience, and potentially, a lack of 
branches. Of course there are some products out there, like the 
Bank On initiative, where banks are offering low-cost, low-risk 
consumer checking accounts. I certainly hope that will improve 
financial inclusion, but many consumers are also moving to 
payments methods outside the banking system because they are 
accessible, they are on apps, and because they don't have those 
kinds of minimum balance requirements. So, it is possible that 
a digital dollar issued by the central bank could be part of an 
ecosystem that lowers transactions costs--
    Mr. Scott. I only have a moment here.
    Ms. Brainard. Sorry. Yes.
    Mr. Scott. With all that you said, answer this for me: How 
do we overcome the challenge of having unbanked and underbanked 
communities view a central bank digital currency exactly the 
same as if they had a bank account?
    Ms. Brainard. A central bank digital currency is really 
more like a cash analog. It is really in the digital world, the 
equivalent of holding on to cash or currency. It is direct 
central bank-issued safe money. Consumers hold that right now 
in the form of currency, but currency is not always accepted 
any longer. It is hard to--
    Mr. Scott. Okay. I have 7 seconds, 6 seconds, but please 
make a point to address this. We have to bring everybody along 
with us, including the unbanked and underbanked. And until we 
have that done, we cannot move ahead and be functionable for 
all Americans.
    Chairwoman Waters. Thank you. The gentleman from Ohio, Mr. 
Davidson, is now recognized for 5 minutes.
    Mr. Davidson. Thank you, Madam Chairwoman, and Ranking 
Member McHenry. And Vice Chairwoman Brainard, thank you and 
congratulations for your testimony, and I am glad we are doing 
this hearing. I wish we had scheduled it when we were in town. 
I think being live and in-person adds a lot of value, but I am 
glad we are doing it, nevertheless.
    Ms. Brainard, earlier when my colleague, Mr. Barr from 
Kentucky, was talking with you about your inquiry from the 
Executive Branch, you pointed out that you hadn't personally 
been contacted, but you also said that you wouldn't be the 
subject matter expert. If that is the case, why are you our 
witness? I think I want clarity there. You seem to be handling 
the questions well. Who is the subject matter expert that the 
Administration would be working with, if not you?
    Ms. Brainard. I think our General Counsel's Office would be 
the group of people who interpret our statutory language.
    Mr. Davidson. Okay. So you mean on statute, not necessarily 
on the subject at hand, central bank digital currencies?
    Ms. Brainard. No, my apologies. I was really referring to 
that specific question about statutory language.
    Mr. Davidson. Okay. Wonderful. Thank you for that. And I 
appreciate the chance to clarify it. And just recently, with my 
colleague, you pointed out that the analog is more to cash. So, 
if a person holds $100 of cash in their wallet, is it something 
the Fed would consider a vulnerability to public safety that 
must be reported or monitored?
    Ms. Brainard. No, there is a really important difference, I 
think, in terms of the anonymity of cash, the potential 
anonymity of cash. And of course, any future stake cash would 
continue to be an option for consumers.
    Mr. Davidson. Yes. So, is it a vulnerability if a person 
holds $1,000, or what about $10,000? Is there a point where 
holding cash is some sort of vulnerability to the financial 
system?
    Ms. Brainard. The financial system and consumer preferences 
are moving away from cash, so this is really just an 
observation about what is actually happening. We are very 
committed to provision of currency. We have a lot of really 
important responsibilities in that regard, and we will continue 
to be very committed to currency.
    Mr. Davidson. I asked the question that way because, 
frankly, while cash isn't really illegal yet, there is an 
effort to make the digital equivalent of cash illegal. This is 
a rulemaking, frankly, first attempted under Secretary Mnuchin 
and now contemplated under Secretary Yellen that would ban 
self-custody. And self-custody of digital currency is 
essentially the same as self-custody of physical currency or 
cash. Why do you believe there is scrutiny there?
    Ms. Brainard. That really sounds like something that 
Treasury would be best placed to address.
    Mr. Davidson. Yes. So as you contemplate central bank 
digital currencies, what would you consider a permissionless 
peer-to-peer transaction, because that is the nature of cash. 
If we are trying to preserve that, wouldn't that make it 
essential that any future central bank digital currency also 
preserve those characteristics?
    Ms. Brainard. That is one of the most, I think, profound 
questions that we raised in our discussion paper. There is that 
tension between potential anonymity and concerns, as were noted 
by other members of the committee earlier, about potential 
illicit activity and anti-money laundering.
    Mr. Davidson. Yes, that is why the government has almost 
banned cash, not entirely. And to Mr. Scott's concern, the 
unbanked and underbanked community is already distrustful of 
banks, and they tend to not have accounts. They want to stay in 
cash, and sometimes for good reason, and not illicit activity. 
And I know, frankly, in an adjacent point, 40 of my Democratic 
colleagues sent a letter to Google because they were concerned 
that the geolocation tracking could be used by people to 
regulate abortion, and the reality is their concern on abortion 
might seem more partisan. But the concern is the surveillance 
state, and while geolocation can do that, there is a reason 
they say, just follow the money. We have made cash almost 
impossible to use, and I think that hurts the unbanked and 
underbanked the most. Lastly, I will say if you turn the 
central bank digital currency into this creepy surveillance 
tool and don't preserve the permissionless characteristics of 
it, it is going to hurt. It literally is what China is 
developing, and we shouldn't imitate them. We should protect 
America's way of life.
    Chairwoman Waters. Thank you very much. The gentlewoman 
from Ohio, Mrs. Beatty, who is also the Chair of our 
Subcommittee on Diversity and Inclusion, is now recognized for 
5 minutes.
    Mrs. Beatty. Thank you very much, Chairwoman Waters, and I 
would also like to thank Vice Chair Brainard for appearing 
before our committee today. Much has been touched upon, but it 
gives me a great opportunity to segue from Mr. Himes, Mr. 
Davidson, and Mr. Scott.
    When I think of technology--going back to Mr. Himes--in my 
districtc, because of the Intel Project hopefully that will be 
here, we are going to have a small microchip that is going to 
control just about everything that we are doing. And I put this 
in the same alignment when we start talking about whether it is 
Sandbox, whether it is Coinbase, and any other form of 
cryptocurrency is education and awareness. We know what 
happened with the stimulus checks. We had a great idea. We got 
the monies out there but because of the lack of education, the 
lack of banking for those who had bank accounts with 
businesses, but to be in good standing meant you had to have 
had that much money.
    My question, Madam Vice Chair, is, how do we get the 
underbanked and unbanked educated on this? I am hearing well-
educated people on the Financial Services Committee say, ``I am 
a skeptic.'' Many would say this is the Wild, Wild West. I 
believe it is the new frontier. I am not a skeptic. I just 
returned from a CODEL in the Caribbean with Chairwoman Waters, 
where I got probably the best education on cryptocurrency there 
with many experts in the Bahamas. So, what is our education and 
awareness plan? That would be part two, and for everyone, but 
especially for the underbanked and unbanked.
    And then, I will just give you my next question and you can 
roll the response in, and you have touched on it, and it has 
been asked in different ways. But when we look at 85 percent of 
central banks, that is a good portion that currently are 
exploring a digital currency and end up issuing one. And 
theoretically, let us just say the United States does not. How 
does that affect us in our international landscape?
    Ms. Brainard. Let me just quickly respond to the second 
question first. I think it is very important for your committee 
and for Congress generally to be asking that question. I don't 
think we can take the global status of the dollar for granted. 
And in a world where other major jurisdictions move to the 
issuance of their own digital currencies, it is important to 
think about whether the United States would continue to have 
the same kind of dominance without also issuing one. It is 
possible, but it is a very important question.
    Mrs. Beatty. Yes, one other thing. Is broadband important 
for us to be engaged in this digital currency world?
    Ms. Brainard. Yes, although offline usage is also an area 
that will be important to explore for areas that don't have 
good coverage.
    Mrs. Beatty. And, ``good coverage'' is the operative 
phrase, as we weave in other things. Let me remind everybody 
who didn't necessarily support the infrastructure bill, that as 
we move forward, broadband was a part of it. So as we keep 
coming back, we need to think about that in relationship to how 
we survive financially. Thank you.
    In fact, I am not sure what my time period is, so I yield 
back, Madam Chairwoman.
    Chairwoman Waters. Thank you, Mrs. Beatty.
    The gentleman from Ohio, Mr. Gonzalez, is now recognized 
for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman, and 
thank you, Dr. Brainard, for being here and sharing your 
thoughts.
    You talked with Mr. McHenry about two of the benefits of a 
CBDC--avoiding fragmentation and instability--and you cited the 
recent instability in the stablecoin market as your example for 
that. Just so we have a base level of understanding, would you 
agree that, one, the stablecoin that broke and basically went 
to zero, that was backed by low-quality assets or at least 
volatile assets? Would you agree that was an algorithmic 
stablecoin not backed by fiat currency in any way, shape, or 
form? You would agree with that, correct?
    Ms. Brainard. It appears that way, yes.
    Mr. Gonzalez of Ohio. Okay. Would you also agree that the 
other one that you cited that broke the peg for a period of 
time does not have the same transparency or isn't as 
transparent from an asset quality standpoint as maybe we would 
like in an ideal world? Would you agree with that?
    Ms. Brainard. Yes.
    Mr. Gonzalez of Ohio. Okay. Would you also agree that 
another prominent stablecoin, which is more transparent and 
claims to have higher quality assets, that did not break the 
buck, correct?
    Ms. Brainard. Yes.
    Mr. Gonzalez of Ohio. Okay. Tell me if this leads you to 
the conclusion that it leads me to, which is that a well-
regulated stablecoin, where we have high standards for quality 
of assets, and liquidity transparency, and where we really 
tighten the definitions around what a stablecoin is and what it 
can hold, would it solve the instability issue that you cited?
    Ms. Brainard. A very robust set of regulation, akin to 
bank-like regulations, would solve a bank-run type of 
instability, yes.
    Mr. Gonzalez of Ohio. Again, quality of reserve. I think we 
would probably disagree on sort of the scope of that, but 
quality of reserves, liquidity, transparency, redemption 
rights, these are the sorts of things we should be talking 
about when we are talking about well-regulated stablecoins.
    Ms. Brainard. Yes. It won't solve the fragmentation 
problem. It won't solve the interoperability problem. It 
wouldn't solve the potential--
    Mr. Gonzalez of Ohio. I want to get to that fragmentation 
point for a second. You also said that you are in favor of a 
world where we have coexisting alongside of each other, CBDCs 
and stablecoins. When you say what you just said about all of 
these other problems that don't get solved, but then you say 
that you are for this coexistence, help me understand why that 
is not speaking out of both sides. You are not both the--
    Ms. Brainard. Let me just say first, one way or the other, 
I think the decision about whether to issue a CBDC lies in the 
future. So, it is really in that world I would see a CBDC as 
potentially complementary.
    Mr. Gonzalez of Ohio. Let me just ask you really quickly, 
in a world where we have well-regulated stablecoins, and there 
are various providers, you have said that leads to 
fragmentation. Help me understand why that world, plus a CBDC, 
in your view doesn't also lead to fragmentation? How are we 
less fragmented if you are in the camp of saying, I am for both 
coexisting?
    Ms. Brainard. Yes, the currency that is backed by the full 
faith and credit of the U.S. Government naturally provides 
interoperability between different platforms. And so, in that 
kind of a world, you would still have a digital asset that 
would have the backing of the U.S. Government and, therefore, 
would naturally be that kind of neutral self-settlement asset 
layer. And different stablecoins could then have different 
attributes and be part of different ecosystems, but you would 
have that basic interoperability built in.
    Mr. Gonzalez of Ohio. Yes, I guess I am still having 
trouble understanding how, in your view, these could coexist 
and there not be fragmentation, but I will set that aside for a 
second. My final question, with 20 seconds left is, have other 
central banks reached out to your team and expressed concern 
from a reserve currency status if the U.S. does not have a 
CBDC?
    Ms. Brainard. Other central banks have certainly asked us 
to participate in some of their work in the hopes that the U.S. 
would--
    Mr. Gonzalez of Ohio. Specific to the reserve currency 
status question.
    Ms. Brainard. Specific to being one of the most important 
central banks that values privacy and transparency and a set of 
values around digital currencies that they share.
    Mr. Gonzalez of Ohio. Thank you. I yield back.
    Chairwoman Waters. The gentleman from Illinois, Mr. Casten, 
who is also the Vice Chair of our Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets, is now 
recognized for 5 minutes.
    Mr. Casten. Thank you, Madam Chairwoman, and I am really 
enjoying this conversation. And thank you, Vice Chair Brainard, 
for being here today.
    I want to start with just some structural issues that I 
have. I am still having a hard time getting my head around this 
as long as we have had these conversations. For a U.S. CBDC, my 
understanding, and correct me if I am wrong, just, ``yes'' or 
``no,'' is that for it to work, it always has to be a liability 
of the Federal Reserve. Is my understanding correct?
    Ms. Brainard. Yes.
    Mr. Casten. Okay. So if that is the case, does that not 
mean that from a money supply perspective, it is always limited 
to M1 money supply? There is no multiplier effect, the banks 
can't lend against deposits, it is always limited to just an M1 
money supply issue. Is that essentially correct?
    Ms. Brainard. It would be akin to cash. It would be the 
digital analog of cash, currency.
    Mr. Casten. Okay. I asked that because I am getting to a 
larger question, so we will get there. But I am hard pressed to 
think of how a private bank would ever have a specific 
incentive to take CBDC deposits. I can't imagine the interest 
rate that gives them the same incentive that they would have if 
they can lend against deposits. What is the case for why the 
private banking sector would find CBDCs valuable in their 
business model?
    Ms. Brainard. Banks are very important in payments. 
Consumers are moving away from, to some degree, using their 
deposit accounts for payments. We have seen that kind of growth 
in some of the leading mobile payments apps, and so I certainly 
don't know. Again, I think the reason that we are trying to 
think in the future about this is because we don't actually 
know how the financial system is going to evolve, but I would 
imagine that banks would continue to want to be very active in 
the payment space, and this is an important service.
    Mr. Casten. I am not raising these as criticisms of your 
work or our work. It is just that I understand that you know, 
as an intermediary of money charging fees, that different types 
of currency are fungible but with the opportunity to make money 
in a bank. If I deposit $1,000 in the bank and lend out $800, I 
just can't see that opportunity existing in a CBDC space. And 
that is such a huge engine not only of the bank's incentives, 
but our economy's incentive.
    Let me shift if I could, and I am still going to get to the 
bigger question here if I run out of time. Let's talk about 
stablecoins that are not CBDC stablecoins. In a world where we 
have satisfied that there is no differential money laundering 
advantage or payment time advantage, is there any reason why a 
stablecoin doesn't fundamentally present the same liquidity and 
risk issues as a money market fund does and shouldn't have the 
same sorts of protections around it from a depositor investor 
protection perspective?
    Ms. Brainard. Yes. You could think about it as a money 
market fund or you could think about it as requiring even 
higher protections as a kind of tokenized deposit, but yes.
    Mr. Casten. Okay. The reason that I asked those questions, 
and I don't mean this to sound like a leading question, but I 
think I am somewhere between Congressman Himes and Congressman 
Sherman. I love the new technology. I think there is sex 
appeal. I think we should embrace these things. I also agree 
with Mr. Sherman that there is the potential for a lot of grift 
on these devices because they are so sexy and they are 
attracting a lot of relatively unsophisticated money. Do you 
have a view, from where you sit as a Vice Chair on FSOC or 
otherwise, that if we have this thing that is very 
technologically sexy, lots of people are coming into it. There 
are sophisticated players that are taking advantage of it.
    Do we have enough visibility into the transactions that are 
going on in these markets, whether inside the exchanges or 
inside the wallets, to ensure that people are not essentially 
running a whole lot of pump and dump schemes, for lack of a 
better word or taking advantage of insider information? Do we 
have enough regulatory protection to understand what is 
happening there, because I have a concern, and I would love 
your thoughts on the time we have left?
    Ms. Brainard. We certainly don't at the Federal Reserve, 
and I am guessing several of the other financial regulators 
might share that concern.
    Mr. Casten. I would love to follow up offline, because it 
scares me. That feels like a lot of what is driving the 
volatility in the space, and it scares me if we don't know how 
to actually identify how big a deal that is. I see I am out of 
time, so I yield back. Thank you for your thoughtful responses.
    Chairwoman Waters. Thank you very much. The gentleman from 
Georgia, Mr. Loudermilk, is now recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman. Vice Chair 
Brainard, thank you.
    I know this has been touched on, but I think it is very 
important. I want to make sure we have a clear understanding in 
Congress about this CBDC White Paper and the intention of the 
Federal Reserve to potentially move forward. And I am sure it 
has been said that the White Paper states that the Federal 
Reserve does not intend to proceed with the issuance of a CBDC 
without clear support from the Executive Branch and from 
Congress, ideally in the form of a specific authorizing law. 
That is a very loosely-worded phrase, and my estimation is that 
the Federal Reserve does not intend to proceed with the 
issuance of a CBDC without clear support from the Executive 
Branch and Congress, ideally in the form of specific 
authorizing law.
    Could you touch on or confirm that the Fed won't proceed 
with the CBDC without a specific authorizing law from Congress, 
or what is the intention?
    Ms. Brainard. Yes. I think the intention is just as you 
described it, that we don't intend to proceed without the 
support of the Executive Branch and Congress, and it would be 
ideal to have authorizing legislation that is specific to this. 
It is really as simple as that.
    Mr. Loudermilk. Okay. If there was an authorization in the 
form of an authorizing law which would indicate clear support 
from Congress, but if there wasn't an authorizing law, would 
there still be an intention to move forward in some way?
    Ms. Brainard. I think we really want to see that support 
coming both from the Executive Branch and the Congress before 
moving forward on actually issuing a digital dollar if the 
decision was made to move in that direction.
    Mr. Loudermilk. Okay. We will keep an eye on it, because 
the words, ``we don't intend,'' leave a lot of ambiguity as far 
as I would like to hear that we are not going to do it without, 
but I understand what you are saying. So, we will keep an eye 
on it. I will move on to another subject.
    One of the Fed-cited reasons why a CBDC could be helpful is 
that about 5 percent of households are currently unbanked, but 
the FDIC's data indicates that many of those people simply do 
not want a bank account for various reasons. It is really that 
a massive government undertaking with a CBDC would be vastly 
out of proportion to the relatively small scope of the problem. 
In my mind, that issue, digital currency alone, would not help 
the unbanked because if they want to be unbanked, they will 
stay unbanked.
    A CBDC would have to be paired with some Fed-sponsored 
checking accounts to actually have an impact on that, and I 
think that would be a wildly misguided idea. Our payment 
systems already work well for the most part, so the best thing 
to do is to make improvements to the existing system rather 
than just completely overhaul it, in my estimation.
    But another concern with a CBDC is cybersecurity, which is 
something that I have been very interested in since I have been 
in Congress, having come from the IT sector. The Federal 
Government is probably the single biggest cyber risk, and 
virtually every Federal agency has experienced a data breach.
    My question is, if the Fed ever did proceed with a CBDC, it 
would be catastrophic if cybercriminals were able to manipulate 
our currency, so how could you ensure that it would be 
protected against cyberattacks?
    Ms. Brainard. Yes. Operational and cybersecurity risks are 
an ongoing challenge for all payment systems, and I think any 
digital dollar would be the same. And of course, we already are 
responsible for providing critical pieces of the wholesale 
payments infrastructure and the retail payments infrastructure. 
We provided both to the public and to the government. I would 
just call your attention to Fedwire, to FedACH, and, of course, 
we are working on FedNow. So, we already have really important 
responsibilities in the payment system in collaboration with 
and in support of the private sector, and we already have very 
significant cybersecurity responsibilities there. And we 
recognize how important those risks are and how important each 
operational resilience is.
    Mr. Loudermilk. Okay.
    Chairwoman Waters. Thank you.
    Mr. Loudermilk. Thank you, Madam Chairwoman. I yield back.
    Chairwoman Waters. The gentleman's time has expired. Thank 
you.
    The gentleman from New Jersey, Mr. Gottheimer, who is also 
the Vice Chair of our Subcommittee on National Security, 
International Development and Monetary Policy, is now 
recognized for 5 minutes.
    Mr. Gottheimer. Thank you so much, Madam Chairwoman. And 
thank you, Vice Chair Brainard. It is good to see you. Thanks 
for being here to discuss digital assets and Federal Reserve's 
research on central bank digital currencies.
    Vice Chair, as you know, many Americans are already storing 
their hard-earned dollars in privately-issued digital assets, 
like stablecoins, as we have been talking about today. While 
some stablecoins are less stable than others, I believe it is 
possible to establish guardrails to ensure Americans can 
distinguish stablecoins that are backed one-to-one with liquid 
assets from others that have questionable or nonexistent 
financial backing.
    My draft legislation, the Stablecoin Innovation and 
Protection Act, would establish a definition and requirements 
for qualified stablecoins, and in the bill, qualified 
stablecoins are defined as cryptocurrencies redeemable one-to-
one for U.S. dollars. This legislation would reduce financial 
instability in markets, protect consumers, and support 
innovation in American fintech. It would also create a pathway 
for both banks and nonbanks to acquire a qualified status for 
stablecoins they issue.
    With Federal oversight, do you believe that non-bank 
entities can be reliable issuers of qualified stablecoins if 
they can prove they are fully backed by cash or cash 
equivalents?
    Ms. Brainard. Yes.
    Mr. Gottheimer. Excellent. And if a system of qualifying 
stablecoins was implemented, what specific guardrails would you 
like to see in place for non-bank issuers?
    Ms. Brainard. I think that the present working group put 
out a variety of requirements that would be important. Of 
course, they are focused on bank-issued stablecoins. But I 
think any set of stablecoins would need to have a similar, very 
strong set of protections regarding assets, the actual consumer 
protections, investor protections, transparency, and 
cybersecurity. There is a very important list of protections 
that would be very important for a stablecoin to be able to 
redeem reliably and to not be subject to consumer and investor 
fraud and other kinds of protection concerns.
    Mr. Gottheimer. Thank you so much. I appreciate your 
insight, and I am looking forward to continuing with the 
conversation there. I would like to shift, if it is okay, with 
you a bit to discuss the need to support continued innovation 
in digital assets. In the Federal Reserve's recent report, 
``Money and Payments: The U.S. Dollar in the Age of Digital 
Transformation,'' the Fed explored the potential benefits and 
risks associated with issuing a central bank digital currency, 
as you have also obviously been addressing. The technology that 
supports digital assets is rapidly evolving, as everyone knows, 
in this area of finance and has been a great source of 
innovation in recent years. And if one were established, how do 
you see a CBDC interacting with privately-issued digital assets 
like stablecoins?
    Ms. Brainard. I think that having a digital currency that 
is backed by the full faith and credit the U.S. Government as 
currency is unique, and would be unique, and could actually be 
an important support to a broader system of private-sector 
innovation, much as the Federal Reserve today, the payment 
services it provides, and the issuance of currency it provides 
under BIRD private-sector innovation. In the comments we have 
gotten back from innovators and payments providers, they really 
talk about the potential for a digital currency issued by the 
central bank to provide a neutral settlement asset on a neutral 
layer in the technology stack that would enable 
interoperability and be a stable underlying neutral asset.
    Mr. Gottheimer. Thank you for that. I appreciate it, and I 
appreciate you for your work. I yield back the remainder of my 
time. Thanks.
    Chairwoman Waters. Thank you. The gentleman from North 
Carolina, Mr. Budd, is now recognized for 5 minutes.
    Mr. Budd. I thank the Chair. Vice Chair Brainard, thanks 
for being here today to discuss the Fed's plan for a CBDC or 
digital dollar.
    Historically, the Federal Government has not had the best 
track record when it comes to innovative thinking versus the 
private sector. Government innovation seems like sort of an 
oxymoron, if you will. Here is what I want to know: What is the 
Fed trying to achieve by issuing a CBDC that the private market 
hasn't already been able to do? Here is why I asked. It is 
because when I look at private-sector innovations, like 
stablecoins, I already see that many of the claims of a CBDC 
have been achieved by stablecoin providers, for example, USDC, 
the U.S. dollar coin issued by Circle.
    Ms. Brainard. Yes. First of all, no decision has been made. 
We are really exploring this topic, and there are risks with 
action, and risks with inaction. But the U.S. Federal Reserve 
uniquely can issue currency that is backed by the full faith of 
the government. Of course, no private entity can do that, so it 
just plays a different role. And I think what Congress has 
always asked the Federal Reserve to do is to play a role 
alongside the private sector. That is why we have really 
important payment systems, like Fedwire.
    I think there is a general recognition that when there is a 
completely secure, trusted asset that underpins the system, 
private innovation can actually be stronger and more robust. 
And that is really the question here, whether by being that 
neutral settlement asset, that foundational layer, it might 
actually lead to greater ability for the private sector to add 
value and innovate.
    Mr. Budd. Vice Chair, thanks for that. So, there is some 
possible outcome where the Fed would say they don't need to do 
anything, the private market just has this handled. You could 
see that possibly being an outcome?
    Ms. Brainard. Absolutely. I think that it would simply be 
different, going into the international payment space with a 
stablecoin as the kind of dominant digital form of the dollar 
when other central banks from other countries issue their 
digital currency from their central bank. That is just a really 
different approach, but it is certainly one that some people 
would favor.
    Mr. Budd. Vice Chair, what has gotten us the most on edge 
or concerned about the Fed issuing a CBDC are the concerns 
around financial freedom and privacy. Privacy and the lawful 
use of money without Big Brother keeping tabs is a universal 
right, so I am not convinced that a centralized digital payment 
system issued by the government would fully protect users' 
privacy. What steps would the Fed take to prevent the 
government from monitoring Americans' financial transactions or 
prevent certain legal--with an, ``L''--transactions from 
occurring that the government deems high risk or that the 
government just doesn't generally support?
    Ms. Brainard. Privacy is a huge issue. It is incredibly 
important. And that is why the discussion paper that we put out 
in January says that one of the core principles of any such 
digital currency, digital dollar is that it would need to be 
privacy-protected. And what the paper talks about is an 
approach that is just like your bank deposits today, that there 
would be no direct connection between the Federal Reserve and 
consumers, that it would be an intermediated system. Banks 
could play the same role as they do now with having the 
transaction records or having obligations in terms of the 
privacy of those transaction records and being responsible for 
verifying identities. So, it wouldn't be any different from the 
system we have today in that regard.
    Mr. Budd. Thank you, Vice Chair. I yield back.
    Chairwoman Waters. Thank you. The gentlewoman from 
Massachusetts, Ms. Pressley, who is also the Vice Chair of our 
Subcommittee on Consumer Protection and Financial Institutions, 
is now recognized for 5 minutes.
    Ms. Pressley. Thank you, Madam Chairwoman. The creation of 
a digital dollar is certainly a hefty responsibility. This 
technology, if properly designed and administered, has the 
potential to promote financial inclusion, enhance consumer 
protection, and completely revitalize our public payment and 
banking services. Today's hearing is on a CBDC, but I do want 
to begin by highlighting the currently outdated payment system 
that brought us here, a system where families still have to 
wait days at a time just to access their own hard-earned money. 
While the U.K. switched to a real-time payment system back in 
2007, the Fed delayed action for an entire decade, and the 
FedNow system is not expected to be implemented until at least 
2023 or 2024.
    Vice Chair Brainard, this delay by the Fed has had 
devastating consequences for working families and, some would 
argue, has contributed to many people turning towards riskier 
systems like cryptocurrency, stablecoins, and other private 
options in search of faster payments. Why should we trust the 
Fed with the responsibility of designing and implementing a 
CBDC? Given the Fed's track record, is it safe to trust the Fed 
with this responsibility, and how do we know this project would 
not face the same decade-long delays?
    Ms. Brainard. I think FedNow is going to be very important 
in terms of offering real-time payments. I agree with you that 
from the perspective of those small businesses and families 
that need access to their funds the most quickly, real-time 
payments can have the largest effect. FedNow didn't get started 
for a long time because of public debate of the nature that we 
are having here today. We are a public institution, so unlike a 
private institution, there needs to be support from Congress 
and broader support among a whole variety of stakeholders. And 
that is why FedNow took some time to get that kind of support, 
get off the ground, but we are now on track to deliver it at 
this time next year.
    And the private sector is quite excited about it at this 
juncture, although there was a lot of ambivalence in the lead-
up to that announcement, and I think it is a really important 
analog to today. The financial system is moving very rapidly. 
It is very hard for us to see 5 years out; if we wait until 5 
years to decide to launch, it will probably be another 5 years 
before we could actually deliver. And that is why I think it is 
really important to do that work.
    Ms. Pressley. Thank you, Vice Chair. I'm sorry. I have a 
couple of other questions I want to get in, so I am just going 
to reclaim my time here. I think the point here is that many 
countries have been able to set up a real-time payment system 
much more quickly and efficiently than us, and it is critical 
that our nation is meeting the evolving needs of the digital 
economy. And let me be clear: The Fed is not and has never been 
the sole Federal entity responsible for issuing currency or 
administering public payments. The U.S. Mint issues coins, and 
the Postal Service provided postal banking services for decades 
until it was shut down. Today, Treasury's Bureau of the Fiscal 
Service partners with banks to issue prepaid debit cards to 
millions of unbanked and underbanked individuals.
    Vice Chair Brainard, do you agree that instead of expecting 
the Fed to solely shoulder the burden of determining any kind 
of CBDC architecture, we should be bringing in other key 
agencies and actors into this process from the onset that are 
proven?
    Ms. Brainard. We do partner with Treasury on those prepaid 
cards. We do partner with other agencies. We provide a lot of 
the services in the rail. We are in partnership with a variety 
of agencies. So yes, I agree with you.
    Ms. Pressley. That is good to hear, because as we evaluate 
how to design and build our digital currency architecture, we 
should be involving other public agencies like Treasury, and 
the Postal Service as well. The design and implementation of 
public digital money will affect everyone, and it is imperative 
that this process be as inclusive and as democratic as 
possible, with an explicit focus on financial equity and 
establishing faster payments while safeguarding communities' 
right to privacy at the same time. Thank you, and I yield back.
    Chairwoman Waters. Thank you very much. The gentleman from 
Tennessee, Mr. Rose, is now recognized for 5 minutes.
    Mr. Rose. Thank you, Chairwoman Waters, and Ranking Member 
McHenry, and thank you, Vice Chair Brainard, for being with us 
today.
    In its discussion paper, the Federal Reserve included a 
request for public comment on several questions on design 
considerations as well as on the benefits and risk of the Fed-
issued digital currency. One question asked, for example, if 
cash usage declines, is it important to preserve the general 
public's access to a form of central bank money that can be 
widely used for payments. A few responses that you are probably 
familiar with from commenters include, ``That is a loaded 
question. Stop phasing out cash.'' Another, ``Cash is king. 
Leave cash alone. Some form of cash will always be necessary. 
We should always have access to non-digital forms of 
currency.'' Yet another, ``There will always be a need to use 
cash.'' And finally, ``We should always have access to non-
digital forms of currency.''
    Vice Chair Brainard, following up on a line of questioning 
from Mrs. Beatty earlier, if the use of cash declines or 
continues to decline, I might say, how would individuals in 
areas that lack access to broadband utilize a central bank 
digital currency?
    Ms. Brainard. First, let me just say, we are absolutely 
committed to continuing to issue currency, and we have a lot of 
investments in providing cash. So, we are really just going to 
respond to consumer preferences there, but we couldn't agree 
more that it is very important for access to cash. Whether 
there may be less acceptance of cash and payments over time, 
that is not something that we would obviously have any control 
over, but we are certainly providing cash, and we think it is 
very important to continue to do so.
    In terms of rural areas, areas that may lack connectivity, 
one of the areas of research is to think about offline 
transactions stored value cards. It is a very important set of 
considerations about making sure that if there were some kind 
of digital currency, there would be around-the-clock access, 
including offline.
    Mr. Rose. And you have touched on my next line of 
questioning, which is, are there any workstreams underway or 
analysis being done that you could comment on, on the ability 
to issue a CBDC and maintain an offline option for payments and 
transmissions, and could you comment on those?
    Ms. Brainard. Yes, it is one of the workstreams. It is 
certainly something that we are also in collaboration with some 
of our pure central banks who are very focused on this issue as 
well. Obviously, for this to really be an inclusive form of 
payment, there need to be solutions that address offline usage 
when the access to the internet is low or nonexistent.
    Mr. Rose. Another question in the Fed's request for public 
comments was, ``Are there additional ways to manage potential 
risks associated with CBDC that were not raised in this 
paper?'' The responses included things like, ``Keep politics 
out of monetary policy.'' ``The potential risk of corruption 
and abuse of centralized power and control over all economic 
activity is too great.'' And another, ``Once the door to the 
kind of power CBDC creates is opened, it will be abused.'' And 
then finally, simply, ``Don't do it.''
    Vice Chair Brainard, we saw how dangerous it can be when 
the government weaponizes the financial system for political 
purposes under the Obama Administration's Operation Choke 
Point. More recently, the Canadian government instructed banks 
to freeze accounts linked to the trucker protests over vaccine 
mandates. Vice Chair Brainard, without appropriate safeguards, 
would a CBDC make it easier for the Federal Government to block 
individuals it disagrees with from accessing the financial 
system?
    Ms. Brainard. I really don't see a CBDC raising questions 
that are different from deposits and bank accounts, for 
instance. And the paper that was released in January, in 
particular, talks about an intermediary model, akin to what we 
see with commercial bank deposits, where the central bank 
doesn't have any direct interaction with consumers, doesn't see 
transactions by consumers, but there are intermediaries, very 
importantly, including banks that would be responsible for both 
identity verification and for keeping that transaction data 
private. So in that sense, I don't see it as really any 
different than the issues that are raised with commercial bank 
deposits, and privacy is one of those areas that I think is 
most important to think really hard about. We asked some really 
important questions there, and we got some good answers.
    Mr. Rose. Thank you. I appreciate that insight and I hope 
to hear more going forward. I yield back, Chairwoman Waters.
    Chairwoman Waters. Thank you. The gentlewoman from 
Michigan, Ms. Tlaib, is now recognized for 5 minutes.
    Ms. Tlaib. Thank you so much, Madam Chairwoman, and thank 
you, Vice Chair, for being with us.
    I know given the reliance on electricity and internet 
access for a functioning central bank digital currency, many 
folks are not touching on the impact of climate, and I truly 
believe that the CBDC must take into account severe weather 
events and climate change impacts. Over the last several years, 
I have been alarmed at companies like Greenidge reactivating a 
coal-fired power plant solely for the purpose of mining energy, 
intensive proof-of-work-based cryptocurrency. When our 
communities are flooding and our forests are burning, this is 
simply a huge step in the wrong direction and cannot be a 
viable model going forward, particularly for CBDC. Vice Chair, 
how is the Fed approaching these challenges when developing a 
CBDC?
    Ms. Brainard. Yes. I think the proof-of-work that is needed 
as a consensus mechanism in some forms of blockchains is 
extremely energy-intensive, as you say. Any kind of system that 
is permissioned where you have a central ledger or a central 
authority, like a central bank, doesn't require that kind of 
very energy-intensive consensus mechanism because there is a 
trusted--
    Ms. Tlaib. We have these environmental concerns, and you 
are talking about proof-of-work. Again, how are we addressing 
those environmental concerns through the--
    Ms. Brainard. Any kind of system that would be run by the 
central bank or where the central bank would be the central 
authority in terms of who can issue would be on an existing 
payment system. It would not require those consensus mechanisms 
that use up all that energy because all these servers would 
have to be involved in establishing that a transaction had 
taken place. So, it really wouldn't be very different from our 
existing payment infrastructure, which doesn't require that 
kind of energy intensity.
    Ms. Tlaib. As you probably know, I represent the third-
poorest congressional district in the country. It is a 
significantly unbanked and underbanked population. And 
throughout the pandemic, I saw how difficult it was for many of 
my neighbors who lack access to traditional banking services to 
receive their stimulus checks or collect unemployment 
insurance. Our traditional banking ecosystem really failed them 
precisely when they really needed the money the most. I 
understand the appeal of digital assets and better payment 
systems. However, the Fed's current CBDC proposal requires the 
use of a bank account. And earlier today, you noted that you do 
not believe the Fed has the authority to authorize direct 
accounts for individuals.
    Vice Chair, can a digital dollar truly function, as you 
mentioned, as, ``a cash analog,'' while using this intermediate 
whatever model? How can we make sure that we are removing 
barriers to financial inclusion, not shifting them around?
    Ms. Brainard. Yes. I think what a central bank-issued 
digital currency can sort of help with is reduce transaction 
costs in real-time payments. What it would need to also see in 
order to really make a dent in this very important underbanked 
and unbanked problem that we are all very concerned about is 
there would have to be other partners, I think, either 
nonprofits or public partners who would be able to be that 
intermediary. And, of course, banks are also now starting to 
offer or are offering Bank On accounts, which are low-cost 
accounts, so maybe banks can also do that.
    Ms. Tlaib. Yes, I know. And Vice Chair, I have said this to 
my colleagues on this Financial Services Committee. It is not 
free to bank with these institutions. It actually costs money, 
and that is sometimes the biggest barrier, right? If I have 
time, Madam Chairwoman--I don't know if I do. But I know that 
earlier this week, the Fed's 2021 report on the economic well-
being of U.S. households found that low-income and underbanked 
users were more likely to use cryptocurrency for transactional 
use, for obvious reasons, because of those barriers, while 
high-income users were most likely to use crypto purely for 
investment purposes, and typically had other retirement funds. 
I am really concerned that many individuals who are currently 
using cryptocurrency solely for financial access have no choice 
but to expose themselves to a highly volatile ecosystem. Are 
you addressing that?
    Ms. Brainard. Correct. That was a very important finding in 
this survey. And I agree with you that it would be really 
important not just to have banks as intermediaries, but also to 
potentially have other kinds of intermediaries whose business 
model might be specifically to provide that bridge to consumers 
who currently, for a variety of reasons, are not comfortable 
with bank accounts.
    Ms. Talib. Thank you. I yield back.
    Chairwoman Waters. Thank you very much. The gentleman from 
Wisconsin, Mr. Steil, is now recognized for 5 minutes.
    Mr. Steil. Thank you, Madam Chairwoman. And Vice Chair 
Brainard, thank you for being here today.
    A lot of the conversation today seems to assume that the 
ease of use of other countries' CBDCs poses a threat to U.S. 
dollar dominance in the future. And while I recognize that the 
sophistication and liquidity of our financial markets enhances 
the utility of the dollar worldwide, I think a big part of the 
dollar's appeal as a reserve currency is the strong, stable 
position of the United States. With that in mind, I am becoming 
more and more concerned about the worsening fiscal position and 
how it will threaten the U.S. dollar's central role in global 
finance.
    In its Budget and Economic Outlook, the CBO projected the 
growing danger posed by rising interest costs. We have taken on 
a lot of debt. We are running persistent deficits. Meanwhile, 
interest rates are rising and by all indications are going to 
continue to rise. And so, I think it is relevant for the 
committee just to take stock that for reference, the last time 
inflation was this high, about 40 years ago, the yield on the 
10-year note was around 11 percent. We are not close to 11 
percent today, but most forecasters, including the CBO, expect 
the cost of debt to continue to rise. In fact, the CBO 
projections show net interest costs rising from about $400 
billion this year to nearly $1 trillion by the end of the 
decade, and this, I think, is the number-one issue that we 
should be discussing, particularly as it relates to maintaining 
the supremacy of the United States dollar as our global reserve 
currency.
    So with that in mind, with that kind of construct, Vice 
Chair Brainard, over the course of today's hearing I have 
noticed that a lot of the disagreement about the structure of 
the CBDC stems from our different views of what problems the 
CBDCs are supposed to solve. We have kind of heard financial 
inclusion. We have heard other things discussed today. And I 
think one thing that is of note is in the FDIC's survey of how 
Americans bank, 36.3 percent of unbanked respondents said they 
didn't have a bank account because they simply don't trust 
banks, 36 percent said they avoided banks for privacy reasons, 
and 19.6 percent said banks don't offer the products or 
services they need.
    It is not obvious that a CBDC would necessarily inherently 
solve these problems, so I would like your input here from a 
global perspective. Other countries are exploring a CBDC. 
Specifically, what problems are other countries attempting to 
solve through their implementation of a CBDC?
    Ms. Brainard. I think there are a variety of motivations. 
Financial inclusion is certainly among the problems that some 
other jurisdictions are solving. There is declining use of 
cash. That is a very important motivation among several pure 
central banks, and the focus there is on making sure that 
consumers, households still have direct access to central bank 
money as the use of cash as consumer preferences and business 
preferences decline regarding cash. There is also the 
motivation of concern about fragmentation of the payment system 
and potential instability associated with the increased use of 
stablecoins. And, of course, there is also concern about the 
very opaque and costly nature of cross-border transactions. 
That is just a quick summary.
    Mr. Steil. Understood. But have they achieved any of these 
early goals? Let us just take financial inclusion for a minute, 
because it is a topic we spent a lot of time working on and 
thinking about, so I think it is appropriate to discuss. As I 
noted earlier, many of the reasons folks are not banking in 
United States involve privacy concerns, I think made worse by 
the proposals of this Administration to see aggregate inflows 
and outflows of Americans' bank accounts. In other countries, 
for our own lessons, have they seen any success with those 
stated goals, for example, financial inclusion?
    Ms. Brainard. I think it is a little too early to assess 
that. The central bank digital currencies that are being issued 
in foreign jurisdictions are quite recent, and other countries 
are in the process of developing but have not yet issued them. 
Some jurisdictions have seen some really, really big 
improvements in financial inclusion through the use of a 
government-provided payments app, interestingly. There is a lot 
of focus, for instance, on Brazil in that regard, and there you 
have seen a really big increase in financial inclusion.
    Mr. Steil. I appreciate you being here. I am cognizant of 
the time, Madam Chairwoman, so I will yield back.
    Chairwoman Waters. Thank you. The gentleman from Illinois, 
Mr. Garcia, is now recognized for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Madam Chairwoman, and 
thank you, Vice Chair Brainard, for being here today.
    I want to, of course, talk about the use of digital assets 
and payment technologies. As they continue to grow and 
integrate into our daily lives, it is important that we offer 
safe and efficient digital tools and assets that will protect 
consumers and maintain financial stability. I applaud the 
Federal Reserve for taking the next steps toward improving U.S. 
payment systems so that vulnerable customers are not left 
behind in the digital age.
    Vice Chair Brainard, I recently co-sponsored the Electronic 
Currency and Secure Hardware (ECASH) Act, introduced by my 
colleague, Mr. Lynch of Massachusetts, which directs the 
Treasury to establish a two-stage pilot program to develop and 
issue an electronic version of the U.S. dollar e-cash for use 
by the public. The bill has a major financial inclusion 
element, because ECASH will not require the use of a bank 
account. According to the FDIC, over 7 million Americans are 
unbanked. The ECASH Act ensures that those who rely on physical 
cash due to mistrust or lack of access to traditional financial 
services will have the option to use ECASH, allowing users to 
facilitate online payments and access to the digital 
marketplace.
    Vice Chair Brainard, as the Fed considers its central bank 
digital currency design, it seems that the Fed has a two-tier 
system in which a consumer would need to go through a private 
banking institution to access a central bank digital currency. 
How will the Fed work to ensure that all consumers have access 
to a central bank digital currency, specifically the unbanked 
and underbanked population?
    Ms. Brainard. I think that financial inclusion question is 
one that we have and will continue to focus on in our research. 
My sense is that because of the concern about privacy, and 
wanting to have an intermediated solution here, or at least if 
we were to go in that direction, our paper recommends that the 
question about who might those intermediaries be becomes very 
important for financial inclusion. And again, the private 
sector can do a lot of innovation in this arena.
    So, if you have a payment asset which is low cost to use, 
and where you have immediate settlement, there are likely to be 
nonprofits or other private intermediaries that may innovate on 
top of that in order to reach underbanked consumers. And of 
course, it is also true as in your suggestion that other 
government agencies might be quite relevant there, but it is 
not the tradition of the Federal Reserve, and statutorily, we 
are proscribed from directly providing those accounts.
    Mr. Garcia of Illinois. Thank you. Dr. Brainard, I would 
like to shift gears briefly and discuss the use of stablecoins 
for remittances. As you know, Facebook failed in its attempt to 
use its own stablecoin in 2019 after this committee and other 
policymakers raised serious consumer protection, financial 
stability, and consolidation of economic power questions. 
However, in 2021, Facebook launched a much narrower digital 
wallet pilot program called Novi, which would facilitate 
remittances using a stablecoin called the Paxos dollar. While 
the Paxos dollar is not an algorithmic stablecoin, I worry that 
there is a potential for the Paxos dollar to lose its alleged 
dollar peg, like we have seen with the algorithmic stablecoin, 
Terra. In fact, Tether, the largest stablecoin, briefly lost 
its peg, as you know, earlier this month, due to this month's 
crypto crash.
    Would a U.S. central bank digital currency provide the 
potential for a safer and lower-cost alternative to 
remittances?
    Ms. Brainard. Remittances is one of the use cases that I 
think is cited most often. In terms of the potential benefits 
of a digital currency, that is certainly the main motivation of 
some foreign central banks, and moving to issue a digital 
currency is for remittances. And as you know, remittances 
currently are very, very costly. It's [inaudible] flow to make 
international remittances. So yes, that is one of the areas 
that is seen as most fruitful potentially.
    Mr. Garcia of Illinois. Thank you. My time is up, Madam 
Chairwoman. I yield back.
    Chairwoman Waters. Thank you. Thank you very much.
    The gentleman from South Carolina, Mr. Timmons, is now 
recognized for 5 minutes.
    Mr. Timmons. Thank you, Madam Chairwoman. And thank you, 
Vice Chair Brainard, for being with us today, and 
congratulations on your recent confirmation.
    I want to build on what my friend, Congressman Steil, just 
touched on. I believe it is more critical than ever that we 
maintain the dollar as the global reserve currency. But the 
current state of the U.S. economy with skyrocketing inflation, 
our $30 trillion debt, and increasing erosion of the confidence 
of our position as a global leader are all causing some to 
bring into question the future of the dollar. Just a few years 
ago, most would argue that there was no real alternative to the 
dollar, but these conversations have now begun to gain 
traction.
    Recent events have brought forces to bear that could speed 
up a potential alternative. China is working tirelessly to 
challenge the dollar, and they are playing the long game. Their 
Belt and Road Initiative has given them considerable leverage, 
especially among developing countries all around the world. 
That, combined with filling the vacuum created by U.S. and EU 
financial sanctions on Russia and Belarus, gives China the 
possibility of challenging the dollar far sooner than we may 
have expected. As the chairwoman just said, trust and 
confidence in the U.S. institutions provides the global 
community the ingredients to maintain the dollar as the global 
reserve currency, but China can possibly browbeat their way 
past the necessary trust to get a large portion of the world to 
abandon the dollar, and this is extremely concerning to me.
    Additionally, the recent CBO report showed that our 
national debt will continue to skyrocket to unfathomable levels 
in the coming decades. Their report tells us that the debt will 
be 110 percent of GDP by 2032, an all-time record, and we will 
reach 185 percent of GDP by 2052, 30 years from now. This is 
all driven by the staggering $72 trillion of spending over the 
next 10 years, $11 trillion more than the CBO projected in 
February of 2021.
    Admiral Mike Mullen, in 2010 when he was the Chairman of 
the Joint Chiefs, said that the greatest threat to our national 
security is Congress' inability to spend within its means, and 
we had $11 trillion or $12 trillion in debt then. And here we 
are, we are talking about tens and tens of trillions more in 
debt just in a few short years. In my opinion, this is the 
single greatest threat to maintaining our global position. The 
world needs to be able to trust that we can continue to pay our 
bills, and the CBO report paints a picture that will make it 
much harder for us to continue to make that argument.
    Do you agree that debt is the greatest threat to 
maintaining the dollar's current status as the world's global 
reserve currency? If not, what is? And how would a potential 
Fed-issued CBDC play into this discussion?
    Ms. Brainard. I think the U.S. status as a reserve currency 
is reflective of a host of things: the resilience and dynamism 
of our economy; the depth and liquidity of our financial 
markets; and the trust in our institutions and our legal 
system. And when you think about other residents from around 
the world, why would they wish to invest in the dollar, all of 
those things go into it. And certainly, I think that fiscal 
sustainability is a piece of that picture, but we do have a 
very dynamic and resilient economy, as we have seen just in the 
last few years.
    In terms of the payments dominance of the U.S., that is 
really the piece that I think a digital currency goes to. The 
payments dominance of the U.S. is not something that we can 
take for granted. As you noted, there are other countries who 
would prefer not to be using dollars for international 
payments, and who would wish to be moving away from the kind of 
international payment system that is very centered around the 
U.S. dollar. In that context, if other central banks issue 
their own digital currencies, it is very important for the U.S. 
to be at the table, to have an important leadership role at the 
table in determining standards for those kinds of cross-border 
transactions. And it may be very important for the U.S. to have 
its own digital currency offering. That is a question, but I 
think it is an important question that we should just keep in 
mind as we are thinking about the pluses and minuses of the 
potential future state of the U.S. and global financial 
systems.
    Mr. Timmons. Thank you for that answer. Madam Chairwoman, I 
yield back.
    Chairwoman Waters. Thank you. The gentlewoman from Texas, 
Ms. Garcia, who is also the Vice Chair of our Subcommittee on 
Diversity and Inclusion, is now recognized for 5 minutes.
    Ms. Garcia of Texas. Thank you, Madam Chairwoman, and thank 
you, Madam Vice Chair, for being here with us today as we 
discuss the implications of creating a digital currency. And I 
am not going to call it the fancy, ``CBDC,'' because, frankly, 
a lot of viewers who are listening to us probably don't 
understand what that means. So, I am going to just talk 
generally about the digital dollar equal to our dollar.
    So if cash is king, and the dollar is king, then the queen 
that is equal would be that digital dollar. And I don't mind, 
for one, that we have some little princes and princesses around 
the king and the queen, whether it be cryptocurrency, or debit 
cards, or anything else. I just think we need to make sure that 
whatever is out there, that as Mr. Scott, my colleague, said 
earlier, that everyone is brought along and that everyone is 
included. I know one of my colleagues said that we are all 
enslaved to the phone. Well, some of us are not. I know I am 
not. I still have a checkbook, and I still keep it and maintain 
it, and I have a debit card that I was issued by my bank that I 
almost never use. One size will not fit all, so we are going to 
have to keep the options. And I find 5 years a long time to 
develop this, and, quite frankly, I am not sure that China or 
the Bahamas took that long.
    My first question is, how long will it really take? And 
then, how will we kind of wean off or balance and make sure 
that we have the different options for people?
    Ms. Brainard. The truth is, I don't know what the right 
number of years is. It really depends on where we are in that 
decision process. But the piece that takes the most time--
    Ms. Garcia of Texas. I want you to wait and stop 
interrupting. Where are we in the decision process, because I 
am a little frustrated, and I am here toward the end, and I 
have sat here and listened to all of it. It seems that when we 
had the Fed Chair here, he kind of pointed the finger and said 
that he was waiting for the Treasury Secretary to say 
something. Then, she came in, and she said they were waiting 
for the President's Working Group. Then, the Working Group came 
in and they said that they need something from Congress. Where 
does it stop? Who is going to decide, and how long is it going 
to take, because we don't want to have to have you back here 
and say, where are we, we are having to catch up. Where are we 
on this? Tell us what the roadmap is?
    Ms. Brainard. We have put out a discussion paper, but, of 
course, Congress has this really important role to play. And 
so, as we have said, we would like, in making that decision, 
clear support from both the Executive Branch and Congress. Let 
me just put that aside because that is really all of you.
    In terms of other countries that have built, it probably 
took China about 6 years to go from their decision to a pilot. 
What I have said I think is important is that while the public 
debate and discussion and education are really important and we 
need to take the amount of time that is appropriate, we can be 
doing some things at the Federal Reserve. And that is what I am 
hoping that I can, and my colleagues at the Federal Reserve 
can, move around.
    If you were in Congress to make that decision, we would be 
further along in that process. We wouldn't be starting from the 
first day, but we would know a lot about those policy design 
questions and technology build questions. So, that is the piece 
that I think we can--
    Ms. Garcia of Texas. Okay. And you keep talking about 
stakeholders. Could you define what that means? Are you talking 
to consumer groups? What consumer groups are at the table, what 
minority groups are at the table, what women's groups, what 
groups representing rural America, what groups representing 
just poor people who have little access to cash but actually 
don't even depend on checkbooks either? They just go cash the 
check, paycheck to paycheck, and deplore payday lenders. So, 
who set the table, because they were not at the table when they 
were not going to be a part of the result?
    Ms. Brainard. Absolutely. Part of the reason this is a long 
process in our system is because we have a very rich set of 
stakeholders. We get comments. That is our first step, is 
soliciting comments. And consumer groups did submit important 
comments: payments companies; tech companies; banks. We got a 
rich set of comments, and now we are kind of systematically 
going through and making sure we do reach out, particularly to 
the underbanked, to rural areas, to those who do not 
otherwise--
    Ms. Garcia of Texas. Madam Chairwoman, I don't believe the 
witness answered my question. I want to know who is at the 
table, what consumer groups? So, who is it? Is it the Consumer 
Federation of America, or are the credit unions at the table? 
Are the community banks at the table? I think I am struggling 
with trying to find out just where we are in this process, and 
I was hopeful that we would get some answers today.
    With that, I yield back.
    Chairwoman Waters. Thank you very much.
    Ms. Brainard. I am happy to go through it. We have talked 
to the National Consumer Law Center and--
    Chairwoman Waters. We will follow up. I will make sure.
    Ms. Brainard. I have a whole list for you if that would be 
helpful.
    Chairwoman Waters. Okay. The gentleman from Michigan, Mr. 
Huizenga, is now recognized for 5 minutes.
    Mr. Huizenga. Thank you, Madam Chairwoman, and it's good to 
see you again, Vice Chair Brainard.
    I want to follow up a little bit on a couple of my 
colleagues actually on the other side of the aisle. Mr. Himes 
expressed his view that the benefits of a digital currency are 
quite clear. I imagine you had a chance to review the letter 
that Republicans from our committee sent and the questions and 
concerns highlighted throughout. The crux of the question that 
Mr. Himes was referring to is whether or not the obstacles in 
our payment system could best be addressed by a centralized 
digital currency. And since it is obvious, I am curious, do you 
believe that is the case or not?
    Ms. Brainard. The kinds of issues that a central bank 
digital currency is uniquely able to solve really go to having 
the full faith and credit behind the issuance of currency. We 
have that now in physical space. We don't have that in digital 
space. The financial system is moving extraordinarily rapidly 
to a primarily digital system. Consumers, households have 
direct access to safe central bank money today and they can use 
that for payments, but payments are moving to digital. So the 
question is, in the future, do we want households to continue 
to have direct access to safe central bank money? The question 
also is, in the future, if stablecoins become the predominant 
mechanism for a digital representation of the dollar, what 
kinds of instability and fragmentation that may lead to. And if 
stablecoins are the only digital representation of the dollar, 
does that potentially handicap us in the international 
environment? Those are just the questions--
    Mr. Huizenga. I am going to interrupt you. I am getting 
Fed-speaked and a little filibustered on that. So is that a, 
yes, you do agree with that?
    [No response.]
    Mr. Huizenga. Now, I can't hear. I don't know.
    Ms. Brainard. I really think the right way to think about 
this is the future state of the payment system, not what the 
payment system looks like today. Again, it is just evolving so 
rapidly.
    Mr. Huizenga. Okay. Well, I look forward to the answers 
from Chair Powell, in response to our letter I assume you will 
have involvement on, and so I will move on to an additional 
question. And I know this was something that has been on the 
mind of a number of colleagues. I am curious why you think a 
well-regulated stablecoin would reduce the deposit base even 
more than a CBDC, and even an intermediated CBDC, could that 
still possibly erode the deposit base like the digital one?
    Ms. Brainard. I don't actually have any way of knowing 
whether a well-regulated stablecoin--how much that might 
influence the deposit base relative to a digital dollar, really 
the--
    Mr. Huizenga. Okay.
    Ms. Brainard. Yes. I can't assess that.
    Mr. Huizenga. I want to get to my final question. In 
February, when we had Treasury Under Secretary Liang here to 
testify on the President's Working Group on Financial Markets 
stablecoin report, I asked her about agency coordination. And 
like Treasury, the Federal Reserve was part of the working 
group. Just about a month or so before the release of the 
report, SEC Chairman Gensler stated in an interview that 
stablecoins, ``may have attributes of investment contracts, 
have some attributes like banking products, but the banking 
authorities right now don't have the full gamut of what they 
need and how we work with Congress to sort through that.'' And 
since then, the SEC has continued to offer contradictory 
statements, providing little or no clarity on the issue.
    Vice Chair Brainard, we have talked a lot this afternoon 
about stablecoins and how a CBDC would be in direct competition 
to them, but clearly the SEC has a role to play in all of this. 
Can you briefly explain to the committee how the Federal 
Reserve is coordinating with the SEC on that particular issue?
    Ms. Brainard. Yes. I actually see a potential digital 
dollar issued by the central bank as complementary to private-
sector innovation and to stablecoins as coexisting with a 
central bank with commercial bank money and stablecoins and 
potentially actually spurring private-sector innovation, so a 
little different. And of course, we collaborate closely with 
the SEC. That is very important.
    Mr. Huizenga. I yield back.
    Chairwoman Waters. Thank you very much. The gentleman from 
Massachusetts, Mr. Auchincloss, who is also the Vice Chair of 
the committee, is now recognized for 5 minutes.
    Mr. Auchincloss. Thank you, Madam Chairwoman, and Vice 
Chair Brainard, I appreciate your time today and your answers 
in this long session. When you get to me, you are almost done.
    I am also glad that over the course of this session, you 
have really cleared up that you agree that you require 
congressional authorization to issue a CBDC. You had me a 
little nervous there at the top of the hearing, but I am glad 
because I strongly believe that both the letter and the spirit 
of the law is such that you would need congressional 
authorization to issue a CBDC.
    And that is important because I think there is a lot of 
skepticism still that I am hearing and that I share about the 
utility of a CBDC, both because it is a solution in search of a 
problem, although you have offered a couple of potential 
solutions, because of the security cybersecurity of this, 
because of its potential to infringe on Americans' privacy, and 
because any time you have programmable currency in the hands of 
a centralized power, you risk the fact that it can be 
politicized very easily, and that would be hugely detrimental 
to the United States dollar being the world's reserve currency. 
However, I strongly support your pursuit of research and 
development on a CBDC, because I do think it gives us better 
standing in negotiations for international protocols, and so I 
think the R&D is good, even though I am not sold that it should 
go on to the product stage.
    I want to continue with the line of questioning from my 
colleague from Ohio, Mr. Gonzalez, about fragmentation. You 
have offered as one of the potential reasons for CBDC, that it 
is the only way that you have the full faith and credit behind 
a stablecoin. I don't really understand that because a well-
audited and transparent stablecoin regime, like we have seen 
with USDC, really does, de facto, have the full faith and 
credit of the United States dollar behind it. Because it has 
U.S. dollar-denominated securities behind it, it is really just 
one step removed. Am I missing something there?
    Ms. Brainard. I think it is quite different to actually 
issue the digital asset as opposed to a digital asset that has 
reserves behind it.
    Mr. Auchincloss. Why? For purposes of actual use in the 
market, why is that different? If you have a stablecoin that is 
directly backed, audited, and disclosed by fiat currency that 
is the full faith and credit, what is the missing link there?
    Ms. Brainard. The missing link is that you would have one 
tokenized asset that would be seen as having the full faith and 
credit of the U.S. Government behind it, because the U.S. 
Government actually issued it and--
    Mr. Auchincloss. Yes. But again, we are kind of going in 
circles here because something like a USDC is backed by U.S. 
dollar-denominated currency that is the full faith and credit. 
So as long as there is an auditing and disclosure regime for 
the stablecoin, you have the full faith and credit behind it. 
Now, the market can price whether they think the liquidity is 
appropriate, whether it is 90-day securities or 180 day or--
    Ms. Brainard. That may be right. But clearly, in the case 
of money market funds, that ability hasn't been foolproof, and 
so we have seen runs on money market funds repeatedly actually. 
It is different to have a stablecoin than to have a currency 
issued by the central bank, and there are a number of 
protections that you can kind of layer on. The more you layer 
on those protections, of course, the more that private sector 
asset may be less able to be used in certain ways. So, there is 
a tradeoff there.
    Mr. Auchincloss. Reclaiming my time then, Vice Chair, you 
have been promoting this idea of a CBDC also as a solution to 
fragmentation and as even undergirding public-private 
coexistence here. I still was unclear with your answers to Mr. 
Gonzalez. How would it help fragmentation to add a CBDC into 
the mix? What is the actual technical process by which you are 
improving interoperability in some way?
    Ms. Brainard. It is creating one asset that every other 
stablecoin can be seamlessly transferred into and out of, so--
    Mr. Auchincloss. We can do that without a CBDC.
    Ms. Brainard. Not unless they are interoperable, which 
requires a standard setting and some kind of central agreement 
around interoperability.
    Mr. Auchincloss. But we could focus on the standard setting 
and get to the same interoperability without a CBDC.
    Ms. Brainard. Yes. I think the question is just whether you 
want that amount of complexity in the regulatory regime.
    Chairwoman Waters. Thank you.
    Mr. Auchincloss. I yield back.
    Chairwoman Waters. Thank you very much. I would like to 
thank Vice Chair Brainard for her testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place her responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    With that, this hearing is adjourned. Thank you all so very 
much.
    [Whereupon, at 2:46 p.m., the hearing was adjourned.]



                            A P P E N D I X


                             May 26, 2022 


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