The rise of digital assets is a revolution in the digital and financial world; for the first time, consumers can make direct money payments across the globe at the speed of the internet. The widespread use of digital assets would allow consumers to transfer money near-instantaneously rather than rely on a series of intermediaries to conduct a single transaction.
The extraordinary promise and rise in popularity of digital assets are prompting lawmakers, regulators, and economists to examine tools such as a Central Bank Digital Currency (CBDC). CBDC is a profoundly dangerous tool that threatens consumer privacy and security and the continued innovation of the digital asset market.
A CBDC is a digital form of central bank money. In practice, a CBDC would be widely available to the public and used as a digital dollar. There are currently over 90 countries worldwide that are examining, developing, or implementing a form of CBDC.
- A CBDC would fundamentally change the structure of the U.S. financial system, altering the roles and responsibilities of the private sector and the central bank. A CBDC can undermine our current banking system that relies heavily on deposits to fund loans. A widely-available CBDC would serve as a close or near-perfect substitute for commercial bank money. Reducing aggregate deposits into commercial banks will inevitably reduce access to credit and increase costs.
- The most notable and troubling CBDC in development is the Chinese digital yuan. The pinnacle of digital authoritarianism, this digital currency would be linked to a social credit score that gives the Chinese government instant knowledge and control over its citizens’ finances. The digital yuan will increase the ability of the Chinese government to silence dissidents and control speech.
- In an attempt to squash the voices of those who disagree with his preferred policies, Canadian Prime Minister Justin Trudeau froze the bank accounts of protesters. The widespread use of a CBDC would increase the ability of petty tyrants to control the finances of their citizens and silence voices of dissent. Unlike Prime Minister Trudeau, most Americans do not admire the so-called benefits of “basic-dictatorship” in China and should be extremely wary of tools like CBDC.
- The central bank of the United States, the Federal Reserve, released a paper earlier this year examining the potential for a CBDC and is currently accepting public comment on the proposal. Additionally, President Joe Biden recently put out an executive order directing the Treasury Department to explore the prospect of a United States CBDC.
- While we examine the future of digital currency in the United States, we cannot forget or diminish the value of cash. Traditional cash payments provide consumers with a wide range of benefits from privacy to personal autonomy. The benefits of privacy and anonymity supply an invaluable service to consumers that a CBDC cannot replicate or replace.
Why it Matters
A CBDC is a hazardous tool that could pose significant privacy concerns for American consumers. A widely-used CBDC would create a trove of financial data in the same way that commercial banks and nonbank entities do so today. The account-based model of CBDC leaves consumers vulnerable to government abuses and the security risks of a single centralized point of failure. Any United States CBDC would need to be issued in an intermediated model that would provide a degree of separation between consumers and the central bank. Any CBDC implemented must offer the same convenience of cash and the same privacy protections.
Traditional cash payments provide consumers with a wide range of benefits from privacy to personal autonomy. Physical cash is the only form of payment that does not require a third party such as electricity or an internet provider. This, coupled with the benefits of privacy and anonymity, supply an invaluable service to consumers that CBDC cannot replicate or replace.
We need to let the Federal Reserve know that we will not stand for a CBDC that does not enjoy the same privacy benefits as cash. Public comments on the proposal are being accepted until May 20. You can sign on to FreedomWorks’ letter opposing CBDC here.