CBDC stands for Central Bank Digital Currency, and President Joe Biden, along with other heads of state are on a roll to get CBDC implemented.
“My Administration places the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC.” Executive Order, March 9, 2022.
The Fed’s White Paper
The Federal Reserve had already been tasked with preliminary exploration, and on January 20, 2022, the Fed released Money and Payments: The U.S. Dollar in the Age of Digital Transformation, a surprisingly balanced white paper.
The paper mainly lists the forms CBDC could take, and the benefits and risks of implementation. That is all the paper could do, since the key issue – the form CBDC could take – is at this time undetermined.
However, Money and Payments is clear on the following points,
* CBDC is a liability of the U.S. government, just like paper money. The general public and private institutions such as banks carry no liability. The white paper does not discuss that a U.S. government liability is a public liability – when government functions sour, Joe Q. Public pays the price in taxes or soup lines.
* CBDC can be designed to achieve various levels of privacy, stability, surveillance, crime fighting, inclusion, risk, transparency, permanency, cross-border availability. The white paper does not discuss the likely levels of each. Numerous articles found on the Internet simply assume the shapes CBDC will take without any basis for such assumptions.
In other words, CBDC is not like Bitcoin or Stablecoin or any other form of private digital currency in existence today. CBDC is government issued, and government controlled to stay in concert with government objectives.
Today, several countries have launched pilot CBDC programs, and 9 countries – 8 in the Caribbean plus Nigeria – have fully functioning CBDC.
Rushing to where angels should fear to tread
It is not just Internet pundits imagining what CBDC would look like.
The Federal Reserve Bank of Boston and the Massachusetts Institute of Technology are collaborating on Project Hamilton to explore CBDC design.
Some members of Congress have introduced legislation on CBDC. Not the kind of authorizing legislation that Chairman Powell would like to have, but what could be called preemptive legislation. Examples:
On January 12, Representative Tom Emmer (R-MN) introduced a bill prohibiting the Federal Reserve from issuing a central bank digital currency directly to individuals.
On March 30, Senator Ted Cruz (R-TX) introduced a bill, companion to Rep. Emmer’s, in the U.S. Senate. The Federal Reserve is already prohibited by Constitution and statute from issuing money directly to the public; which might be the reason Senator Cruz emphasizes his concern for individual privacy and his desire to keep the market competitive
“U.S. Sen. Ted Cruz (R-Texas), member of the Senate Commerce Committee, today introduced legislation to prohibit the Federal Reserve from issuing a central bank digital currency (CBDC) directly to individuals. Sen. Cruz’s bill was cosponsored by Sens. Braun (R-IN) and Grassley (R-IA).
Specifically, the legislation prohibits the Federal Reserve from developing a direct-to-consumer CBDC which could be used as a financial surveillance tool by the federal government, similar to what is currently happening in China. The bill aims to maintain the dollar’s dominance without competing with the private sector.“
On March 28, Representative Stephen Lynch (D-M), with co-sponsors Jesús “Chuy” García (D-IL), Rashida Tlaib (D-MI), Ayanna Pressley (D-MA), and Alma Adams (D-NC), introduced a bill calling for an “ECash” prototype that would be distributed directly to the public by the U.S. Treasury.
The Fed treads more lightly
The Fed Board of Governors so far has stuck to what it was mandated to do: produce a preliminary study.
On several occasions Fed Chairman Jerome Powell indicated that he will not proceed with CBDC on his own. He wants specific authority from Congress in the form of legislation, concurrence from the Administration, and acceptance from the general public.
When issuing those statements, Powell might be referring to the fact that the U.S. Constitution clearly says that the power “to coin money, regulate the value thereof…” belongs to Congress. Also, although the Federal Reserve is tasked with ensuring the efficiency and safety of payment systems, it does not have the power to unilaterally implement a totally new payment system or engage in transactions with the public directly.
Powell also might be noting that implementation of CBDC could, as the white paper states, “fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank.” Not something the Federal Reserve should undertake without support from the public and their representatives in Congress.
What is Biden proposing exactly?
We don’t know what Biden is proposing, and at this point neither does he. U.S. CBDC could be designed in many forms and to accomplish many diverse objectives.
The Money and Payments white paper comment section illustrates how widely interpreted is CBDC. Comments vary from viewing CBCD as a pig in a poke, a solution looking for a problem, another step in the evolution of the current U.S. payment system, a great opportunity for inclusion, and so on.
Informed consent from Congress in the form of adopted legislation (if that ever happens) with the approval of the President will provide cover for Chairman Powell.
But can do little to ensure,
- Individual privacy
- Economic good health
- Sustainable national debt