CBDCs: Biden’s Latest Plan for the Surveillance State - The American Spectator | USA News and Politics
CBDCs: Biden’s Latest Plan for the Surveillance State
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The Fed plays a hitherto unprecedented role in the U.S. economy. Growth in the money stock, which had until 2020 remained in the single digits annually, has soared by a remarkable 40 percent since the beginning of the pandemic.

Yet the power that it has now accrued over the financial well-being of Americans would pale in comparison to the power that it would command under a Central Bank Digital Currency (CBDC) program, an idea that is now openly discussed by some of the most powerful people in government.

Such a program, which would turn the American dollar into a purely digital currency controlled, issued, and regulated by the Fed using blockchain technology, would be the largest restructuring of the U.S. financial system since the end of the gold standard.

American leaders were no doubt watching closely when China became the first major economy to launch a CBDC — the digital yuan — in mid-2020. The currency is still in an early testing phase, with a reported user base of 231 million but accounting for less than 0.1 percent of total spending. Nonetheless, the Chinese government has been aggressively promoting its adoption, including during the recent Winter Olympics.

Now Janet Yellen, secretary of the treasury under the Biden administration and former chair of the Federal Reserve, is among those who believe that the Fed must update America’s monetary system by issuing its own CBDC.

A centralized, permissioned digital currency would give an organ of the federal government unfettered access to the financial lives of every American.

In a speech delivered at American University in April, Yellen emphasized that creating a digital currency would require “years of development, not months,” but she suggested that such development was already in the works. She stated that both she and President Biden shared the same “urgency” in “pulling forward research to understand the challenges and opportunities a CBDC could present to American interests.”

What are those interests, precisely? To give the Fed its due, there are ways, at least on paper, that Americans could benefit from a digital dollar. There would be no more routing payments through private banks and Mastercard — processing transfers would take seconds instead of days. Working Americans would benefit from their paychecks clearing promptly, while business owners would appreciate an end to failed payments.

Crime would also be drastically reduced under a universal CBDC scheme. Money laundering, which relies on the opaqueness and bureaucracy of the financial system’s many layers, would be nearly impossible with the Fed having full and instantaneous knowledge of any transaction involving dollars. Organized criminals such as drug smugglers would suffer from losing access to the physical greenback, and most money transfer scams would cease to exist. Lives, and livelihoods, could be saved.

Finally, Yellen’s main concern appears to be for the dollar’s status as the global reserve currency, which for decades has enabled Americans on the whole to be far richer than their developed European and Asian counterparts. Some analysts perceive China’s digital yuan as the centerpiece of a decades-long plan to topple the dollar from its hegemonic position. Therefore, the thinking goes, the dollar must undergo digitization to remain competitive and retain its place at the top.

Despite these purported benefits, not everyone is convinced. A week before Yellen delivered her speech, Sen. Ted Cruz (R-Texas) introduced a bill seeking to outright ban the Fed from issuing any direct-to-retail CBDC. Some Canadian conservatives have responded similarly to the technology, among them Pierre Poilievre, a candidate for prime minister.

The fact that the loudest voices against the concept of CBDCs are the political Right is no coincidence. The topic is in many ways a litmus test for how much a person trusts the federal government, and most conservatives have, at least over the previous decade, learned to trust it very little.

A centralized, permissioned digital currency would give an organ of the federal government unfettered access to the financial lives of every American. This fact should render any potential CBDC anathema to the values of most Americans, even if it were otherwise inert.

Many of the purported benefits of a digital dollar would be easy to abuse. In her speech, Yellen suggested that a CBDC could be used to “manage risks associated with national security and financial crime.” This would presumably include drug smugglers and money launderers. But a broad term like “national security” invites comparison to the Biden administration’s drumbeating about diversity and inclusion or political extremism — terms meant to facilitate the ever-growing mandate and powers of the government.

A CBDC would also be manipulable to an extent that would put traditional fiat to shame. Given that digital currency is no more than bits and code, a CBDC-issuing Fed could effortlessly delete a person’s holdings if it so pleased.

If Jerome Powell wanted Americans to spend to fight a recession, his underlings could introduce an expiration date to savings accounts. This was a real feature tested briefly by China. If it sounds too outlandish to ever come to pass in the U.S., consider how the Fed has roped the country into an inflation crisis in its ham-fisted attempts to fight the COVID-induced downturn.

Attempts to moderate or regulate any proposed CBDC framework run into difficulties. There are indeed ways to design a digital dollar that would limit the Fed’s power, such as by making it permissionless, which would prevent arbitrary Fed manipulation of the currency. But it is unlikely that the federal government would be willing to adopt a system that would seriously limit its authority over its own currency.

Another common proposal is to keep a hypothetical CBDC as merely an alternative to the traditional greenback rather than a replacement. Such a compromise probably would not last. Just as contactless payments have supplanted coins as the preferred way to pay for groceries, a growing CBDC system could potentially cause a spiral of shuttering private banks and merchants switching to CBDC-only payments for convenience. Eventually, the digital dollar could become de facto mandatory for regular people while criminals and money launderers would still have access to physical greenbacks, leaving neither side of the debate particularly happy.

Is America therefore doomed to cede this particular technological arena to its rivals? Not at all. Central Bank Digital Currencies are, after all, merely one genre of digital currency among many. They are, furthermore, in many ways an inversion of how the pioneers of digital currencies and the blockchain envisioned their creations.

It is notable that some of the biggest critics of CBDCs, among them Cruz and Poilievre, are also enthusiastic proponents of decentralized cryptocurrencies. There are plenty of disagreements to go around — Cruz wants Texas to be an “oasis” for crypto, while Donald Trump thinks Bitcoin is a “scam” — but these ought to be thrashed out in the private sector rather than in government, where mistakes are likely to become entrenched. (READ MORE by John Jiang: Russia’s Digital Iron Curtain)

In all likelihood, despite the proposals of technocrats like Yellen, Americans won’t see a CBDC issued to them for the foreseeable future. The fact that high-profile politicians are already pushing back shows that there is already widespread understanding of the technology’s pitfalls.

The U.S. has also grown to be rather conservative about its currency system, for better or for worse. Famously, the penny has for a long time cost more than a penny’s worth of metal to mint but has still stubbornly remained legal tender. Cultural significance, powerful lobbies, and institutional inertia will make the physical greenback very difficult to uproot.

Would the dollar’s lack of centralized digitization hurt it against the emerging digital yuan in the coming decades? Perhaps, but likely only at the margins. A digital Chinese currency would be easier to adopt for countries that were already predisposed against American interests, such as Iran or Russia.

But for most of the world, the sheer accessibility of a currency is a minor factor. The dollar’s appeal comes from the sophistication of America’s capital markets and the strength, stability, and steady growth of its economy. These factors would be strengthened by letting the private sector take the initiative on digital currency development.

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