Key Insights:

• North Carolina bans CBDCs for state payments and blocks participation in Federal Reserve digital currency testing programs.
• Governor Cooper’s veto of House Bill 690 was overridden as state legislators push back against federal CBDC involvement.
• The passage of North Carolina’s CBDC ban reflects rising national concerns over privacy and federal control of digital currencies.

The North Carolina General Assembly has successfully overridden Governor Roy Cooper’s veto of House Bill 690, marking a decisive move against the acceptance of central bank digital currencies (CBDCs) in the state. The bill prohibits the use of CBDCs for state payments and bars the state from participating in any Federal Reserve testing programs involving digital currencies.

The Republican-led legislature’s actions come amid growing concerns about potential challenges posed by CBDCs in the areas of financial privacy and state authority. The passage of this bill signals North Carolina’s position on the national debate surrounding digital currencies and the federal government’s potential role in their regulation.

Overriding the Veto

The initial passage of House Bill 690 saw overwhelming bipartisan support, with the House approving it by 109-4 and the Senate by 39-5. However, the legislative process hit a roadblock on July 5 when Governor Cooper vetoed the bill, citing concerns about its timing and vagueness. In his veto message, the governor suggested that North Carolina should wait for federal guidelines before taking legislative action.

Despite Cooper’s objections, the North Carolina General Assembly moved forward with the override process. On September 9, the Senate voted 27-17 to overturn the veto, reaching the required 60% majority. 

In August, the House had also successfully overturned the veto with a 73-41 vote. Notably, none of the Senate Democrats who initially supported the bill maintained their stance during the veto override, instead siding with the governor.

Industry Response and Federal Concerns

The bill’s passage has received varied responses, with some industry voices critical of Governor Cooper’s decision to veto. Dan Spuller, head of industry affairs at the Blockchain Association, was among those who voiced dissatisfaction. He argued that the veto was a missed chance to assert state resistance to what many see as federal overreach. Spuller noted on social media platform X (formerly Twitter) that the bill “should have never been vetoed.”

North Carolina’s legislative action aligns with broader national concerns surrounding the federal government’s potential role in regulating or issuing digital currencies. The Federal Reserve has been researching the idea of a CBDC, assessing possible benefits such as improved payment efficiency and greater financial inclusion. However, this exploration has also sparked concerns regarding privacy, financial stability, and the role of traditional banks.

Federal Reserve and National Debate

Federal Reserve Chair Jerome Powell has repeatedly emphasized that the introduction of any CBDC would require clear approval from Congress and would involve the banking system rather than direct issuance to consumers. Despite these assurances, states like North Carolina remain wary of the implications of federal involvement in digital currencies.

This legislative action in North Carolina mirrors a broader resistance seen at the federal level. In May, the U.S. House of Representatives passed the CBDC Anti-Surveillance State Act, a bill aimed at preventing the Federal Reserve from issuing a digital currency directly to individuals. This legislation was introduced as a safeguard against potential government surveillance and loss of privacy.

Senator Ted Cruz followed with a companion bill in the Senate, further intensifying the national debate over the role of CBDCs in the country’s financial system.

Potential Impact on Other States

North Carolina’s move could serve as a template for other states that are skeptical of CBDCs and the federal government’s influence over digital currency adoption. The bill’s passage might inspire similar legislative efforts, particularly in states with Republican-majority legislatures or those with a strong preference for limited federal oversight.