June 09, 2021

Toomey: Congress Should Encourage Continued Development of Private Digital Currencies

Washington, D.C. – In his opening statement at today’s U.S. Senate Banking Economic Policy Subcommittee hearing on digital currencies, Ranking Member Pat Toomey (R-Pa.) encouraged the continued development of private digital currencies while remaining hesitant about the creation of a central bank digital currency.

Expressing concerns over the potential interference with free enterprise and infringements on privacy, Senator Toomey said the private sector is best positioned to increase access to financial services through digital currencies while increasing privacy protections.

Ranking Member Toomey’s remarks, as prepared for delivery:

Thank you, Chair Warren.

Before Congress would decide to authorize creation of a central bank digital currency in the U.S., we need to answer some critical questions. One of them is: What problem is a central bank digital currency trying to solve? In other words, do we need one? It’s not clear to me yet that we do.

Some say a central bank digital currency is needed to enable the Fed to provide retail banking accounts to Americans. In my view, turning the Fed into a retail bank is a terrible idea. Our retail banks do a great job of serving the needs of consumers because they compete with one another in the private sector.

In addition to banks, rapidly evolving technology companies are expanding access to the financial system by providing all types of financial products and services to consumers, including people of very modest means. We don’t need a state-sponsored bank interfering with this successful free enterprise system. Nor do we want a government entity like the Fed positioned to possibly infringe on our privacy, tracking our personal information or monitoring bank transactions. And does anyone think that the government could provide the high quality customer service that consumers want from a retail bank?

Others say the U.S. needs to create a central bank digital currency to compete with China. The fact that China is creating a digital currency does not mean it’s inevitable that the yuan would displace the U.S. dollar as the world’s reserve currency. In fact, there are reasons to believe China’s digital currency will be unappealing.

China has a state-controlled economy and repressive, authoritarian government. It has capital controls on the Yuan that make it unattractive as a reserve currency. And China’s motivation for launching a digital Yuan undoubtedly includes tightening its grip on its economy and enhancing surveillance of its citizens and others. For example, China likely wants to track every transaction done with its digital currency, and to directly control this currency.

China is also reportedly considering putting expiration dates on the digital Yuan to force people to spend it. With features like these, it’s doubtful people will flock to the digital Yuan and abandon the U.S. dollar as the world’s reserve currency.

While I’m not certain we need a central bank digital currency, I think we should consider the development of private digital currencies. After all, it is the private sector—not government—that’s been responsible for developing cryptocurrencies, including stablecoins.

Private digital currencies have the potential to increase access to financial services for all Americans while increasing their privacy. People have raised legitimate issues about private digital currencies, such as their use in illicit activity and their possible effects on monetary policy and on our existing financial infrastructure. We need to discuss and understand these issues, and address them if needed. But we shouldn’t lose sight of the tremendous benefits the underlying technology of digital currencies offers, and that disintermediated payments offer. That’s why we should encourage the continued development of private digital currencies.

I look forward today’s discussion, and thank our witnesses for sharing their expertise.