Not Just A Different Form Of Money

The Biden administration has been something of a disappointment on financial privacy and central bank digital currencies (CBDCs), but it’s not as though their policies are a break from the past. The Trump administration, like the Biden administration, was favorable toward a CBDC and additional financial surveillance, even for self-hosted digital wallets.

Granted, President Trump vetoed the Anti-Money Laundering Act of 2020, the most recent expansion of the Bank Secrecy Act regime. But that’s just a technicality–Trump vetoed the National Defense Authorization Act, a bill Congress stuffed with all kinds of “must pass” items, including the Anti-Money Laundering Act.

Both administrations, in fact, have done little more than carry on the traditions of the past. For decades, the federal government has expanded financial surveillance and federal involvement in money.

So last week’s announcement–which, technically, wasn’t a new announcement–that the U.S. Treasury “will convene an interagency working group to explore the development of a CBDC” should come as no surprise.

In September, the administration released a series of reports on digital assets. As my colleague Nick Anthony pointed out, the reports demonstrated the administration wanted to expand financial surveillance. It was hardly comforting that “the Treasury, much like the Federal Reserve, noted in its reports that it has not officially decided on issuing a CBDC.”

Sure enough, at a Brookings Institution event in October, Under Secretary for Domestic Finance Nellie Liang announced Treasury was committed to “promot[ing] further work on advancing a CBDC.” That sounds awfully CBDC friendly.

The same problem surfaced last week when Liang promoted the new working group.

Yes, Liang was careful to point out the “Fed has also emphasized that it would only issue a CBDC with the support of the executive branch and Congress, and more broadly the public.” So, is the new working group a sign to the Fed? Does Treasury have the Fed’s back? (At least one former official has stated the Biden administration was “trying to push our government to launch a digital dollar” because “it would crowd out” crypto.)

As for the broader public, it doesn’t seem like the administration really cares what they think. Take, for instance, Liang’s response to questions about the incredibly low take-up rates of CBDCs in other countries, such as Nigeria.

The Nigerian CBDC experience has been nothing short of a disaster. As Nick Anthony has chronicled, Nigerians don’t want a CBDC. The government has resorted to all kinds of tricks and financial incentives to increase its infinitesimal take-up rate, but nothing has worked. Finally, the government decided to severely restrict the availability of cash to the point of creating a shortage of paper currency. (Nigeria’s Supreme Court ruled against the President and said this event “shows the country’s democracy [is] a mere pretension and now replaced by autocracy.”)

When asked about the low take-up, Liang made the audacious claim–it’s audacious because the broader public has been rejecting CBDCs everywhere–that “demand for a digital dollar” would be “a key factor.” She then repeated the standard line about the Fed’s desire for support. (Go to the 32:40 mark for the question and full response).

But she was just getting warmed up. She went on to “remind” listeners that:

A digital dollar is just a digital form of a current central bank liability, it’s just a different form of money…some of the reasons countries do implement one is that they feel like they need to have a connection with the public as they stop using cash regularly. In the U.S. it is not entirely clear that’s needed.

Liang knows full well that a CBDC isn’t just “a different form of money.” When layered over the existing financial surveillance regime, it is so much more. Even outside the United States, the international officials implementing CBDCs (and so-called pilot programs) openly support the enhanced surveillance and control mechanisms a CBDC provides.

The head of the Bank of International Settlements, for example, has said “the key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.” (For more on the risks of CBDCs, check out this digital Cato publication.)

As Nick and I have demonstrated in great detail, a CBDC would not provide any unique benefits to Americans compared to existing technologies, and its risks outweigh the purported benefits.

The case for a U.S. CBDC is incredibly week, and it’s a good thing that Majority Whip Tom Emmer (R-MN) and his House Financial Services colleagues are trying to prevent the Fed from issuing a retail CBDC. On Thursday, March 9, Whip Emmer will be at Cato to discuss this issue and introduce a panel discussion titled: Exploring the Risks of Central Bank Digital Currencies.

The truth is CBDCs are mainly the government’s attempt to protect its privileged position and exert more control over money.

CBDCs are not “just a different form of money.” There is no limit to the level of control that the government could exert over people if money is purely electronic and provided directly by the government. A CBDC would give federal officials complete control over the money going into–and coming out of–every person’s account.

This level of government control is incompatible with both economic and political freedom.

If Congress really wants to provide more access to financial markets and ensure more innovation in financial services, members should support more private innovation and competition. They should work to lessen government monopoly and regulation while ensuring that the Fed cannot issue a CBDC.