North Carolina Assembly passes CBDC ban bill

North Carolina’s General Assembly has passed a bill restricting the state’s government from using and accepting a Federal Reserve-issued central bank digital currency (CBDC), making it the second U.S. state to preemptively ban a hypothetical digital dollar.

The bill passed the Assembly in a 109-4 vote on June 26, a day after passing the state Senate in a 39-5 vote, and will now head to North Carolina’s Democrat Governor Roy Cooper to be either signed into law or vetoed.

If Cooper signs the bill into law, it would subsequently prevent state agencies and courts from accepting “payment using central bank digital currency” and ban them from participating in CBDC tests “by any Federal Reserve branch.”

For his part, Cooper has not taken a strong public stance either for or against CBDCs or digital assets more broadly. Given the strong support for the bill in both the state Senate and General Assembly, it would be a somewhat surprising and controversial move for the governor to take this opportunity to make a stand on the issue. This means he will most likely rubber-stamp the bill.

The beginning of a state-level trend?

North Carolina sending an anti-CBDC bill to its governor for approval comes only a week after Louisiana Governor Jeff Landry, on June 19, signed a similar bill in law banning the state’s government from accepting or participating in a CBDC.

The bill also bars authorities from participating in CBDC tests by the Federal Reserve Board of Governors and other federal government bodies while guaranteeing individuals and businesses the ability to accept digital assets for legal goods and services and to self-custody digital assets in non-custodial and hardware wallets.

Despite state governments ramping up efforts to curtail CBDCs, the U.S. appears far from seriously exploring the technology. In March Federal Reserve Chair Jerome Powell told lawmakers at a federal Senate Banking Committee hearing that the U.S. was “nowhere near recommending – or let alone adopting – a central bank digital currency in any form.”

This begs the question, why is the CBDC fearful?

Misguided concerns?

The answer seems to be a combination of libertarian-style fears around privacy, personal liberty, big-government and state surveillance, and a concerted lobbying effort from the anti-CBDC digital asset space, which sees a potential national digital currency as competition for the likes of Bitcoin and Tether.

The Atlantic Council—an American international affairs think tank—keeps a CBDC tracker, monitoring the progress of countries around the globe testing, piloting, developing and launching CBDCs. It currently shows 36 pilots and 30 in development, but only three CBDCs actually launched (Jamaica, Bahamas, and Nigeria).

While the number of projects in testing and development suggests a broad interest in CBDCs, the number launched doesn’t suggest that the primacy of ‘cryptoassets’ in the digital asset space is about to be supplanted—there’s also no evidence from the active CBDCs that this will be a side effect of the technology.

Despite this absence of negative evidence about the effects of CBDCs, a general apprehension was born from speculation, and a few isolated cases, notably China’s pilot, appeared to be winning the narrative.

The Chinese pilot, in particular, has stoked fears about the potential for the surveillance state to abuse CBDCs.

Doomsaying around this kind of misuse-case, combined with pressure from leading digital asset players, has led to the situation where multiple states feel the need to get ahead of the technology.

At the federal level, the CBDC Anti-Surveillance State Act passed the House of Representatives on May 23. The bill still faces a vote in the Senate, but if passed, it would prevent the issuance of a CBDC without the explicit authorization of Congress.

The bill was introduced into the House by Rep. Tom Emmer (R-MN) in February 2023. It would amend the Federal Reserve Act of 1913 to prohibit Federal Reserve banks “from offering certain products or services directly to an individual, to prohibit the use of central bank digital currency for monetary policy, and for other purposes.”

With former President Trump vocally against CBDCs for fear of “government tyranny” and President Biden appearing more in favor of cautious exploration at the risk of falling behind international peers, the looming November election could prove crucial for the future of the technology in the world’s largest economy.

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

Watch: Finding ways to use CBDC outside of digital currencies