July 23, 2023 Reading Time: 5 minutes

In March 2022, President Biden signed an Executive Order directing government agencies to urgently research and develop a potential US central bank digital currency (CBDC) “in a manner that protects Americans’ interests.” It also encouraged the Federal Reserve Bank to continue doing so. And it isn’t just the Biden Administration in the United States working in such a direction.

As of the time of writing, CBDCTracker.org lists three countries or regions with retail CBDCs already “launched” (Bahamas, Jamaica and Nigeria), another five in “pilot” stage, and another twenty in “proof of concept” stage. Many more have at least researched wholesale CBDCs. (“Wholesale” CBDCs are intended for commercial and central bank use and the like, while “retail” CBDCs are intended for the rest of us). A report by the Bank for International Settlements (BIS) released just this month summarizes the results of a survey of 86 central banks and concludes that “there could be 15 retail and nine wholesale CBDCs publicly circulating in 2030.”

When you read statements from high-level officials of the BIS, central banks, and governments, you get the impression that CBDCs are an exciting development in the evolution of money. The BIS, for example, calls them “a new tool in the financial inclusion toolkit.” An op-ed co-authored by BIS General Manager Agustín Carstens and Queen Máxima of the Netherlands frames them in the title as “CBDCs for the people.” An IMF working paper asserts that CBDCs can “bank large unbanked populations” in developing countries.

Unpopular and risky

But when a CBDC was thrust upon the Nigerian people, adoption rates were abysmal at best (below 0.5 percent even a year after its launch), and Nigerians took to the streets to demand access to cash. CBDCs are widely unpopular in the United States as well. A CATO Institute national survey published just in May found that only 16 percent of Americans support the idea, and over twice as many (34 percent) oppose it. 78 percent responded that if a CBDC were offered, they would be unlikely to use it altogether. As for partisanship, while Democrats were twice as likely to support a CBDC than Republicans (22 percent for Democrats, 11 percent for Republicans), just as many Democrats oppose it, and the remaining 56 percent respond that they “don’t know.”

Risks CBDCs present include the loss of settlement finality that comes with physical cash (as abandoning cash accompanies the push for CBDCs), loss of financial privacy, easy seizure of assets, loss of the ability to resolve problems at a local level with a commercial bank (as it would be doubtful that a central bank would come to be known for its customer service), outright prohibition on spending or purchase limits with certain merchants or on certain products, and (perhaps most importantly) the paradigm shift from money as an exercise of economic freedom to one of social engineering by central banks and their respective governments. The latter could manifest itself in various ways, including (to name just a few) negative interest rates (essentially a confiscation of one’s savings), the expiry of one’s money (with a date determined by the issuing central bank or its government) — or even discouraging the consumption of products like gasoline, plane tickets or red meat in order to enforce a climate agenda.

Another CATO resource dedicated to identifying the risks of CBDCs rightly points out that a CBDC could reduce credit availability, disintermediate banks, and challenge the rise of cryptocurrencies. And all this is to say nothing of how businesses operating legally under state law would be treated by central banks when those very same economic activities are illegal under federal law. Even at present (with no CBDC yet launched in the United States), businesses working in the cannabis industry struggle to obtain and maintain bank accounts as many of the commercial banks are federally regulated. Are we really supposed to believe that the Federal Reserve would be more accommodating for cannabis businesses? It is difficult to imagine how CBDCs would not radically undermine federalism. 

Finally, the increased surveillance also has a chilling effect on the public – even for legal activities. Enjoy vice (gambling, pornography)? Want to buy a gun? Now maybe you avoid living your life as you presently do. 

Hardly inclusive

A quick trip down memory lane demonstrates how the debanking of legally-operating banked businesses in action has historically manifested. An Obama-era Justice Department operation called ‘Operation Choke Point’ targeted gun retailers, payday lenders, and the like beginning in 2013 not by charging the employees or owners of those businesses with actual crimes, but by upping the cost for banks to provide banking services to them, reminding those banks of their obligations under the Bank Secrecy Act and anti-money laundering (BSA/AML) regulations and the penalties for non-compliance. The result was (not surprisingly) the debanking of banked people and companies.

More recently, crypto has entered into the crosshairs, with regulators shutting down commercial banks that provide financial services to crypto companies. This latter operation was appropriately coined ‘Operation Choke Point 2.0’ by Nic Carter who draws parallels to the first operation.

The timing of a global CBDC initiative is also suspicious given the present cultural and political climate of “canceling” people with dissenting opinions and of Big Tech’s alignment with government to orchestrate something that resembles more of a PsyOp than “public health” as we have traditionally known it (as evidence from a FOIA request revealed). 

Even if you think that a CBDC is a good idea, consider that its power may be turned against you when the political pendulum shifts in your direction and your views or activities are suddenly considered taboo or illegal by those in power. Real financial inclusion requires an economic system where financial censorship is harder to accomplish in the first place. (Paper cash and Bitcoin help here). 

Oh, and by the way, the BIS itself calls physical cash “the most inclusive form of money we currently have.” With all the talk of financial inclusion, the global push to phase it out is, well, ironic. SEC Chair Gary Gensler was right when he declared that “we already have digital currency. It’s called the US dollar.” We can address the many shortcomings of the traditional financial system without introducing another digital dollar in the form of a CBDC. 

The vast power that a CBDC would place in the hands of a nation state or its central bank points in the direction of an unprecedented level of financial surveillance, censorship, and potentially debanking the banked whenever it may serve certain political objectives. Thus, it is hardly an overstatement to say that we are at a crossroads for civilization. 

We would also be wise to consider the words of FA Hayek, from The Road to Serfdom:

Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends. And whoever has sole control of the means must also determine which ends are to be served, which values are to be rated higher and which lower—in short, what men should believe and strive for.

Emile Phaneuf III

Emile Phaneuf III

Emile writes on matters of money and cryptocurrency and has spent well over a decade working in international business development around the world. He holds a Master’s (double degree) in Economics from OMMA Business School Madrid and from Universidad Francisco Marroquín as well as an MA in Political Science from the University of Arkansas.

He is from the USA but has also lived in Japan, New Zealand, and (now) Brazil.

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