Editor’s note: We endeavor to bring you a range of perspectives on the most important issues of the day. Below is a column arguing that the issuance of a digital dollar, despite its conveniences, is not worth the risks of government control over Americans’ finances and lives. You can find a counterpoint here, where Georgia College’s Prof. Nicholas Creel and Gavin Incrocci argue how a digital dollar can benefit Americans without crushing privacy and individual freedom.
If the recent IRS warning about reporting $600 Venmo transactions warmed your Yuletide spirit, the federal government’s next financial surveillance move will create fuzzies all year long. Right now, officials are preparing to surveil everyone’s financial life in real time.
Welcome to the Brave New World of central bank digital currencies (CBDCs).
Unfortunately, this is not the opening of a dystopian novel. Its prospect grows stronger each day.
CBDCs are direct liabilities of central banks. Traditionally, direct access to the central bank balance sheet is the purview of financial institutions as most money is privately created by private banks lending out customer deposits.
Authoritarian governments, particularly China, are cutting the middleman for political reasons. The Chinese Communist Party (CCP) boasts its digital yuan (e-CNY) will enable further economic control and party discipline.
This power derives from CBDC surveillance capabilities. In blockchain-based cryptocurrencies, “nodes” — people worldwide with as little as a laptop and internet connection — maintain public digital ledgers based on open-source consensus mechanisms. CBDCs, however, have one node: the central bank, and it identifies, monitors, records, and potentially blocks or reverses each transaction.
When fully implemented, the e-CNY will augment the CCP’s social-credit system, which grants or removes privileges based on party loyalty. The CCP is also testing negative interest rates as an economic-stimulus tool. Spend your e-CNY or watch it disappear in real time.
Don’t think it could happen here? It’s already started.
Banks already surveil Americans’ non-cash transactions and those over $10,000 are reported to the IRS. The government justifies this as a needed bulwark against financial crimes and terrorists under the banner of “Anti-money laundering/Combating the financing of terrorism” (AML/CFT).
Last year, Canadian Prime Minister Justin Trudeau used AML/CFT laws to freeze bank accounts of truckers peacefully protesting COVID lockdowns. Had the truckers only had CBDC holdings, Trudeau could have limited any spending or imposed instant confiscation or fines.
Proponents insist CBDC design will shield Americans from such abuses. The Federal Reserve would likely include protections as Chair Jerome Powell has assured. But context is needed.
As researcher Natalie Smolenski wrote for the Bitcoin Policy Institute, when government functionaries speak of “privacy” in the CBDC context they don’t mean from the state. “Rather, the state is presumed to be an essentially good and trustworthy overseer of markets at every scale, including at the level of individual transactions—and a desire for privacy from the state is implicitly equated to criminal intent.”
CBDCs place American’s financial sovereignty at the mercy of potentially partisan bureaucrats — regardless of party — at an historically precarious time. Post-COVID, government balance sheets are bleak. Global debt-to-GDP ratio had risen 356 percent by the end of 2021. CBDCs offer a way out.
With real-time access to the total money supply, officials could implement any number of policies deemed in the public interest or necessary for the next crisis, including negative interest rates, instant tax collection for every transaction, restrictions on the purchase of disfavored products like firearms, cigarettes, or sugary foods, or carbon-based limits on travel.
Equally distressing is the opaque way officials are preparing to dump CBDCs on the public. Whilst academics openly build the technical foundation at the New York Fed and MIT, the legal groundwork remains unclear.
In January the Fed stated it would not move forward without support from all stakeholders including “ideally” a Congressional enabling law. But in October, Rep. Tom Emmer (R-MN) claimed the Department of Justice was exploring a secret CBDC Congressional bypass.
Upcoming House investigations may shed light on this concerning development. But it is telling how hard the Biden administration is pushing for something Americans don’t need. As I’ve written extensively, privately issued, asset-backed stablecoins — digital assets pegged to a monetary value, mostly the U.S. dollar— already provide benefits proponents claim require CBDCs, including financial inclusion and faster, smoother cross-border payments.
Political dissidents and desperate people in Hong Kong, Argentina, Venezuela, and Ukraine use stablecoins. They have also performed remarkably well during this year’s many crypto crises. They could eventually supply the world’s poor and oppressed a pathway to survival and freedom.
Conversely, CBDCs yield ever more power and control to untrustworthy and cash-starved governments. Let’s make our new world more free and less Brave. Say no to CBDCs.
Paul H. Jossey is a crypto analyst and founder of www.thecrowdfundinglawyers.com. Please follow him on Twitter, @thecrowdfundlaw.
The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.