The CBDC Anti-Surveillance State Act
- James Ross
- Jul 18
- 4 min read
1. Executive Summary
H.R. 5403, the "CBDC Anti-Surveillance State Act," is a piece of legislation designed to prohibit the U.S. Federal Reserve from issuing a central bank digital currency (CBDC) without explicit, prior authorisation from Congress. The bill's core objective is to prevent the potential for government financial surveillance and control that its sponsors believe a CBDC could enable. It achieves this by forbidding the Federal Reserve from developing, testing, or issuing a CBDC, either directly to individuals or indirectly through commercial banks. The act also explicitly protects existing private, decentralised digital currencies and strips the Federal Reserve of the ability to use a CBDC for implementing monetary policy.
2. Technical Breakdown of the Bill
The legislation's strategy is to amend the Federal Reserve Act and related U.S. financial codes to create specific, legally binding prohibitions.
Prohibition of CBDC Models (Sec. 2 & 3): The bill amends Section 16 of the Federal Reserve Act to block the two primary CBDC architectures:
Direct/Retail Model: Forbids the Fed from offering accounts or issuing a CBDC directly to individuals.
Indirect/Wholesale Model: Prohibits the Fed from issuing a CBDC through financial intermediaries, such as commercial banks.
Protection for Private Digital Currencies (Sec. 3B & 6): The bill includes a crucial carve-out, stating its prohibitions do not apply to any dollar-denominated currency that is "open, permissionless, and private." This language is specifically crafted to exempt existing cryptocurrencies and certain stablecoins from the bill's restrictions, effectively creating a legal safe harbour for them.
Prohibition on CBDC for Monetary Policy (Sec. 4): The bill explicitly forbids the Federal Reserve from using a CBDC to implement monetary policy. This prevents the use of novel and potentially controversial tools such as applying direct negative interest rates on holdings, executing targeted spending requirements, or expiring stimulus funds.
Requirement for Congressional Authorisation (Sec. 5 & 8): The bill adds a new section (16A) to the Federal Reserve Act, shifting all authority on CBDCs to the legislative branch. It prohibits the Federal Reserve from any activity in the CBDC lifecycle—from initial design and testing to final issuance—without a new, specific Act of Congress. This closes any potential loopholes for pilot programs or partnerships with private sector entities.
3. Firm & Industry Implications
Should this bill become law, it would have significant and wide-ranging implications for various sectors.
For the Federal Reserve & U.S. Monetary Policy:
Strategic Halt: The Fed's research and development into a digital dollar would be frozen indefinitely. This includes collaborations like "Project Hamilton" with MIT. The Fed would be placed in a reactive, rather than proactive, posture on financial innovation.
Constraint on Future Tools: The prohibition on using a CBDC for monetary policy permanently removes a potential set of future tools for managing economic crises. While these tools are controversial, their preemptive removal limits the Fed's options in future deep recessions or deflationary spirals.
For the Commercial Banking Sector:
Prevention of Disintermediation: The bill is a significant victory for commercial banks. A direct-to-consumer CBDC was seen as an existential threat that could lead to a mass outflow of deposits from commercial banks to the central bank, destabilising the banking system and reducing its lending capacity. By prohibiting this, the bill protects the core business model of commercial banking.
Reduced Compliance Burden: Banks are spared the massive compliance and technology investment required to integrate with a wholesale CBDC system and manage customer-facing digital wallets.
For the Cryptocurrency and Digital Asset Industry:
Significant Regulatory De-Risking: The explicit protection for "open, permissionless, and private" currencies provides a powerful legal shield. It creates a clear distinction in U.S. law between government-issued digital currency and private cryptocurrencies, such as Bitcoin and Ethereum, as well as decentralised stablecoins.
Stimulus for Private Innovation: By taking a government-led CBDC off the table, the bill creates a vacuum that the private sector will rush to fill. This will likely spur significant investment and innovation in private stablecoins and other digital payment systems as they compete to become the digital settlement layer for the U.S. dollar.
For the Financial Technology (FinTech) Sector:
Mixed Impact: Firms focused on building infrastructure for a potential U.S. CBDC would see their business case evaporate. However, firms focused on cryptocurrency, decentralised finance (DeFi), and stablecoin technology would benefit significantly from increased regulatory clarity and market opportunities. The focus of innovation would shift decisively away from central bank partnerships and toward decentralised systems.
For U.S. Geopolitical and Economic Standing:
Divergence from Global Trend: The U.S. would be formally ceding ground in the global CBDC race. Over 100 countries are exploring CBDCs, with China's e-CNY already in advanced pilot stages. This could have long-term implications for the U.S. dollar's role as the world's primary reserve currency if other nations create more efficient, programmable cross-border payment systems based on their CBDCs.
Prioritising Principles over Competition: The bill signals that the U.S. political system prioritises principles of privacy and decentralisation over competing with nations like China on financial technology infrastructure. It is a firm statement that the U.S. will not adopt certain technologies if they conflict with its core values.
For Individual Privacy and Civil Liberties:
Pre-emptive Protection: The bill achieves its stated goal of preventing the creation of a financial surveillance tool. A CBDC could, in theory, allow the government to monitor all financial transactions, block payments to disfavored individuals or groups, and enforce complex rules on citizens' spending. By prohibiting its creation, the bill pre-emptively eliminates this possibility.
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