— Analysis —
Federal Reserve Officials Are Testing A ‘Central Bank Digital Currency.’ Here’s What That Means For Your Financial Freedom.
As public health measures raised alarms across the world over state-sanctioned infringement on freedom of assembly and expression, government bureaucrats and private corporations alike have proven themselves similarly eager to violate financial liberties.
Canadian Prime Minister Justin Trudeau invoked emergency powers last year to freeze the personal and corporate bank accounts of individuals involved with Freedom Convoy demonstrations against vaccine mandates. PayPal announced several months later that executives would withdraw funds from customer accounts should they promote racism or misinformation, a policy that the company later claimed was published by mistake.
Such violations of individual liberties have colored the emerging debate over central bank digital currencies, also known as CBDCs, a virtual unit of exchange controlled by the Federal Reserve and tethered to the value of the American dollar.
CBDCs are electronic forms of money that are backed by the full faith and credit of a national government and managed by a central bank. The tokens, unlike cryptocurrencies such as bitcoin or ethereum, would not change in value. Nations such as China, Australia, Japan, India, Russia, and South Korea are presently exploring CBDCs, which have already been established in the Bahamas, Nigeria, and Jamaica, according to a report from the Atlantic Council.
Despite the radical shift that the adoption of a CBDC in the United States would render to the financial system, nearly three-quarters of the population remains unfamiliar with the technology, according to poll results from the Cato Institute shared with The Daily Wire. Sizable majorities and supermajorities oppose the adoption of a CBDC, especially if the technology induced the end of physical cash or implied the government could monitor financial transactions.
Privacy protections are indeed the highest concern among those opposed to CBDCs. Nicholas Anthony and Norbert Michel of the Cato Institute wrote in a recent briefing paper that “there is no reason to believe” the technology would be exempt from laws requiring financial institutions to police transactions and gather personal information.
“Americans have a right to privacy that is protected by the Constitution, but laws designed to counter terrorism, deter money laundering, and collect taxes provide the government with the ability to conduct large-scale surveillance of citizens’ financial information without so much as a warrant,” the analysts wrote. “A CBDC could easily remove what little protections remain because it would give the federal government complete visibility into every financial transaction by establishing a direct link to each citizens’ financial transactions.”
Referencing the unilateral closure of Canadian bank accounts, Michel noted to The Daily Wire that “we have seen what an otherwise democratic government will do even with the boring old electronic technology that we currently use.”
Proponents of CBDCs assert that the technology could increase access to the financial system, as researchers from the Massachusetts Institute of Technology and the University of Virginia said in an article for the World Economic Forum. Others contend that a CBDC based upon the dollar would ensure its continued position as the global reserve currency. Anthony and Michel noted that the former consideration is largely irrelevant in the United States, where nearly every household has either a checking or savings account, while the latter consideration fails to note that robust institutions and property rights are the foundation for the worldwide trust of the dollar.
Federal Reserve Chair Jerome Powell has said that his “mind is open” to a CBDC and added that he was “legitimately undecided” on whether the “benefits outweigh the costs.” The central bank recently conducted a simulation with Citi, Mastercard, BNY Mellon, and other companies to determine the “feasibility of payments between financial institutions” using the technology.
An earlier paper from the Federal Reserve argued that a CBDC would preserve the international role of the dollar while mitigating pitfalls from cryptocurrencies, such as liquidity risk and credit risk. CBDCs could be privacy-protected, intermediated through digital wallets offered by the private sector, and transferable between customers of different intermediaries, while identity verification from banks would discourage money laundering.
Powell said that the Federal Reserve would “want very broad support in society and in Congress” before adopting a CBDC. Michel told The Daily Wire that there exists “a good bit of gray area” on whether monetary policymakers could establish the technology and suspects that “they could unilaterally implement a certain kind of CBDC without further Congressional approval,” a move that would “almost certainly be litigated.”