As the new year begins, many individuals have made resolutions ranging from losing weight to saving money. It’s a fresh start for everyone, so why shouldn’t Congress also set some resolutions? There are various options to choose from, including reining in the Federal Reserve and leveling the playing field for cryptocurrency. However, to avoid overwhelming themselves with too many goals, here are five reforms that Congress should strive for this year.
Firstly, Congress should formally establish that the Federal Reserve does not have the authority to launch a central bank digital currency (CBDC). The Federal Reserve’s recent publication, known as the “Doomsday Book,” highlights how the institution has often relied on its own discretionary authority without explicit congressional authorization. Additionally, statements from Federal Reserve officials have created legal uncertainty surrounding the issuance of a CBDC. All Congress needs to do is amend the Federal Reserve Act to explicitly state that the Federal Reserve cannot create or use a CBDC for implementing monetary policy. This would still allow for research on CBDCs while setting clear boundaries for the Federal Reserve.
Secondly, Congress should limit the activities of the Federal Reserve in general. Although the law requires the Federal Reserve to recoup its costs when launching new initiatives, whether this is happening remains unclear. For example, the development of FedNow cost approximately $545 million, yet the participation in the program is currently free of charge. To address this issue, Congress should amend the Depository Institutions Deregulation and Monetary Control Act of 1980 to establish a specific time frame for cost recovery and require third-party audits for oversight.
Thirdly, Congress should provide clarity on the term “legal tender” and its practical implications. People often misunderstand this term and mistakenly believe that others are obligated to accept U.S. currency whenever it is presented. In reality, legal tender status only means that the dollar is acceptable for the payment of taxes, fines, and contracts. The Federal Reserve itself has acknowledged this confusion on its frequently asked questions page. Congress can rectify this issue by amending the law to include a simple statement such as “Legal tender status does not require private businesses, persons, or organizations to accept United States coins and currency as payments for goods and services.” This would help eliminate confusion surrounding the use of cash, cryptocurrency, foreign currency, and similar forms of payment.
Fourthly, Congress should prevent any agency from restricting the use of self-hosted wallets. Holding cryptocurrency in a self-hosted wallet is equivalent to carrying physical cash in a traditional wallet. However, some government officials have sought to intrude on this space due to concerns about financial surveillance. For instance, the Treasury Department proposed a rule that would have required identification of self-hosted wallet users. Instead of further increasing financial surveillance, Congress should clarify that a warrant is necessary for intervening in transactions between two parties. Coin Center, in response to the wallet rule, highlighted the threat these intrusions pose to personal privacy and Fourth Amendment rights.
Lastly, Congress should eliminate the numerous exceptions from the Right to Financial Privacy Act. The existence of this act was initially promising for cryptocurrency enthusiasts and advocates of civil liberties, as it aimed to protect financial activity. However, the law has become largely ineffective due to the inclusion of many exceptions. Congress can rectify this situation by removing the exceptions and upholding the rest of the law. This would require law enforcement and government agencies to obtain a warrant for accessing Americans’ financial records. While this may make the job of law enforcement more challenging, constitutional protections exist to safeguard citizens from unchecked government power. Removing the exceptions from the Right to Financial Privacy Act is a necessary step to ensure these checks remain in place.
These five reforms cover a wide range of issues. Preventing unauthorized CBDC launches, curbing the Federal Reserve’s expansionary tendencies, clarifying legal tender applications, preventing restrictions on self-hosted wallets, and establishing financial privacy protections may seem like a significant undertaking. However, each of these goals can be relatively simple to implement when considering the bigger picture. If Congress wants to start the new year on the right foot, any of these reforms would be a commendable beginning.
Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, emphasizes that this article is for general information purposes and should not be considered legal or investment advice. The views expressed are solely those of the author and do not necessarily reflect the opinions of Cointelegraph.