Jerome Powell, Chairman of the Federal Reserve, discussed the need for Congressional approval for a digital dollar and its timing. He was speaking today during a Banque de France conference.

“We will need approval from both the executive branch and Congress to move forward with a digital currency,” he said. “So we see this as a process of at least a couple of years that we’re working on, building public confidence in our analysis, in our final conclusions, which we certainly haven’t come to yet.” This could be interpreted as a decision on a central bank digital currency (CBDC) in two years.

That makes sense because he mentioned that the FedNow instant payment system is expected to be online in about a year, which seems a bit later than the May-July period mentioned above. An additional year will give time to assess FedNow’s impact on a CBDC decision.

Approval of the digital dollar from Congress

Powell’s wording on congressional approval could get some attention.

During a US House Financial Services Committee hearing in May, Federal Reserve Vice Chair Lael Brainard was repeatedly asked whether the Fed would proceed with a CBDC without legislation. At the time, he referred to a Federal Reserve CBDC working paper from January that states: “The Federal Reserve does not intend to proceed with issuing a CBDC without clear support from the executive branch and from Congress, ideally in the form of a specific authorizing law”. Republicans interpreted the use of “ideally” and “intend” as caveats.

Powell’s comments seem more definitive.

Legislation and self-hosted wallets

The Federal Reserve chairman also discussed legislation on crypto assets and stablecoins. He spoke about the opportunities and risks of crypto assets, pointing out developments such as the replacement of intermediaries by smart contracts and decentralized governance.

He said that crypto assets present new risks, describing several and stating, “especially non-hosted wallets that allow users to hold their own crypto assets. However, they can also be used to evade sanctions or engage in money laundering.”

While OFAC is completely separate from the Federal Reserve, OFAC recently shut down cryptocurrency mixer Tornado Cash citing sanctions and anti-money laundering violations. So this is not a good sign for self-hosted wallets.

In February, Representative Warren Davidson introduced a bill, the Keep Your Coins Act, which aims to protect self-hosted wallets.

At a general level, physical cash today allows for anonymous transactions. In contrast, future central bank digital currencies may allow levels of privacy but will not allow anonymity. Powell confirmed it today.

It may take time for physical cash to disappear, but while it does, we will lose the right to anonymity over money unless self-custody of digital assets is allowed. For some, anonymity is a personal preference. For others, it is survival, since it avoids government control and economic exclusion in the case of less benevolent rulers.