TD Cowen says Congress likely getting closer to permanently banning a Fed CBDC

Congress may be moving closer to permanently banning the Federal Reserve from issuing a digital dollar, a development that could benefit stablecoin issuers but also complicate broader crypto legislation, according to TD Cowen.

Last week, Senator Ted Cruz filed an amendment to the housing package called the 21st Century ROAD to Housing Act that would permanently ban the Fed from issuing a central bank digital currency, or CBDC. The amendment would make permanent a temporary ban that currently runs through 2030. The housing legislation is expected to get a vote in the Senate as soon as this week.

"We expect a ban on a central bank cryptocurrency to be included in the housing bill that gets to the President's desk as soon as next month. It is more likely that the ban is permanent than temporary," Jaret Seiberg, managing director at TD Cowen’s Washington Research Group, said in a Monday note.

Seiberg said Cruz’s amendment largely reinforces the Fed’s current stance. The central bank has repeatedly said it has no plans to issue a digital dollar and would not proceed without explicit authorization from Congress, Seiberg noted. As a result, he said the amendment would mainly solidify the status quo rather than represent a change in policy.

Last week, a group of lawmakers also signed a letter urging House and Senate leadership to permanently ban a CBDC. Congressman Ralph Norman, one of the lawmakers who signed the letter, said that, unlike cash, a CBDC could allow the government to track transactions and monitor how Americans spend their money, calling it "overreach at its core."

"The House already passed legislation to permanently ban a CBDC. The Senate must amend the 21st Century ROAD to Housing Act with STRONGER language before sending any bill to the House," Norman said. "A permanent prohibition is the ONLY way to protect Americans’ privacy and liberty."

The U.S. House of Representatives passed the Anti-CBDC Surveillance State Act last year, prohibiting the Fed from issuing a CBDC directly to individuals. Cruz, who introduced a Senate version of the legislation, has continued pushing for a permanent ban.

"We agree that the Federal Reserve has no immediate plans to issue a digital dollar. Yet that could change over time based on who wins the White House in 2028 and who becomes Federal Reserve chair in 2030. It is why a ban is helpful," Seiberg said.

Likely impact on stablecoin issuers and crypto bill

Seiberg said a permanent CBDC ban would broadly be positive for stablecoin issuers, as it would remove any doubt about whether the Fed would upend their businesses by issuing its own digital dollar.

However, such a ban could affect the crypto market structure bill, which is already facing hurdles to enactment, Seiberg said.

"This also could become an excuse not to enact the Clarity Act this year, as lawmakers can say they passed the GENIUS Act on stable coins and the ban on Fed-issued digital dollars. That is a lot of congressional focus on one industry," Seiberg said.

"We are not saying this closes the door on Clarity. It just joins the list of obstacles to action. And each new obstacle makes enactment a bit less likely," he concluded.