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Federal Reserve floats ‘central back’ for digital currency, puts critics on high alert

January 21, 2022 | | Print Article

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The Federal Reserve is weighing the prospect of creating a central bank digital currency (CBDC), and critics are horrified.

Digital currency, particularly cryptocurrency, spawned after the 2018 financial crash as a way for people to obtain more power over their wealth, meaning less control by banks and governments.

Legislators like Democrat Sen. Elizabeth Warren are keen on regulating cryptocurrency so as to move power back into the hands of the government. But that may not even be necessary if a CBDC is established.

The libertarians at Reason magazine have argued that the government’s goal is to “displace grassroots cryptocurrencies with central bank digital currencies (CBDC) of their own design that absolutely will not protect privacy, and that will let governments control private transactions.”

The only good news, assuming this claim is true, is that the U.S. government is still in the early stages of this potential creation.

On Thursday the Federal Reserve released its first-ever “discussion paper” on this topic. The “discussion paper” simply lists pros and cons of establishing digital currency, and abstains from offering a recommendation.

“The paper summarizes the current state of the domestic payments system and discusses the different types of digital payment methods and assets that have emerged in recent years, including stablecoins and other cryptocurrencies. It concludes by examining the potential benefits and risks of a CBDC, and identifies specific policy considerations,” according to a press release.

The release goes on to tout digital currency as “a safe, digital payment option for households and businesses” but does concede that there is a valid concern regarding “how to preserve the privacy of citizens and maintain the ability to combat illicit finance.”

For the time being, the Federal Reserve has opened up the topic for public comments that can be submitted here. The comment period will reportedly last 120 days.

The comments on Twitter meanwhile are somewhat mixed, though a large number of Twitter users are echoing Reason’s argument.

Look:

The great deal of mistrust and misgivings seen in the comments above stem from the government’s history of abusing its power and stripping people of their freedoms.

The latest examples come courtesy of the coronavirus pandemic. According to a Human Rights Watch report published last month, “At least 83 governments worldwide have used the Covid-19 pandemic to justify violating the exercise of free speech and peaceful assembly.”

Meanwhile in the financial realm, an increasing number of American dissidents have faced bank purges because of their political views, including most recently MyPillow founder Mike Lindell.

Supporters of creating a CBDC argue that the United States must develop a digital currency, lest it fall behind on the global stage.

“Advocates of the digital dollar, though, worry that the Fed’s delay in implementing a central bank currency will put it behind global competitors, specifically China, which already has moved forward with its own product. There have been suggestions that China’s lead in the space ultimately could threaten the U.S. dollar hegemony as the world’s reserve currency,” according to CNBC.

But speaking of China, Federal Reserve Board of Governors member Christopher Waller noted in comments made five months ago that “the introduction of a CBDC in China … likely will allow the Chinese government to more closely monitor the economic activity of its citizens.”

He added that “depending on its design,” CBDC accounts established in the U.S. could similarly “give the Federal Reserve access to a vast amount of information regarding the financial transactions and trading patterns of” said account holders.

In fairness to Walker, he made it clear that he personally doesn’t support designing digital currency to function like this.

“Should the Federal Reserve create a CBDC for the same reason? I, for one, do not think so,” he said.

However, Waller is a Republican, and as the current administration has made perfectly clear, Democrats feel entirely different about the prospect of monitoring the economic activity of U.S. citizens …

Vivek Saxena
Latest posts by Vivek Saxena (see all)

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