The Fight for the Future of Money
The coming battle over Central Bank Digital Currencies (CBDCs) and what a Fed-controlled digital currency means for us all
We have arrived at the end of the beginning. Everything crypto has been through has led to this moment. Now, we will choose between two paths:
The first leads to financial freedom, equal access to economic resources, and a right to privacy amid a sprawling bureaucratic machine for whom privacy is increasingly an inconvenient obstacle to top-down control.
The second is a path that leads to Chinese-style state capitalism. CBDCs have opened Pandora’s box, unleashing a means of surveillance more powerful than ever before. Combined with social credit scores, intimidation campaigns, and a subservient private sector, the Chinese Communist Party (CCP) has constructed a society very different from the one we know and have become accustomed to in the West.
Before we go further, let’s start with a brief explanation of CBDCs from The Hill:
“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.
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.
Although this nightmarish scenario may have seemed like a distant dystopian future not too long ago, the fragile reality of an increasingly cashless society is on full display in 2022. 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.” [The Hill]
How the digital yuan works
To peer darkly into the future of a digital dollar in the U.S., let’s examine how the digital yuan works today.
The People’s Bank of China (PBOC) began developing the digital yuan (CNY)1 in 2014 under the leadership of Governor Zhou Xiaochuan. It is a digital currency enabled by an app for most users and payment cards for those without access to a phone. The digital currency is not a payment system but a legal tender backed by the PBOC.
The digital renminbi (RMB) requires a commercial bank account (six of the banks supporting digital RMB are state-owned). The digital currency can be spent directly at retailers, even those based in the West, like Starbucks and McDonald’s, and at online retailers like JD.com.
What is the goal?
The CCP has stated that its goal in developing a digital RMB is to partially (or eventually entirely) replace cash, reduce the cost of transactions, improve the efficiency of its financial system, and cut down illicit uses of its currency—including things like money laundering, corruption, gambling, and terror financing.
However, critics have rightly noted that the digital RMB also gives the CCP unprecedented access to the financial lives of its citizens. Transaction flows are now entirely visible to the state, which has the power to add or remove currency, freeze balances instantaneously, and influence or outright control the purchase decisions of private citizens. Although the stated goals are noble, the implications of the control needed to accomplish those goals are worrying.
Back in the U.S., legislators are watching China with keen interest. We have a competitive interest in keeping pace with innovation on a global scale. Currency innovation abroad has the potential to unseat the dollar as the global reserve currency, which creates a national interest for the U.S. to enable new financial innovations.
Senator Elizabeth Warren (D-Mass.) is one of the first U.S. legislators to take a firm stance on digital currencies. Clearly, she has an eye on the CCP. Warren has worked to implement a version of their strategy, implementing a version of their tactics by maligning cryptocurrencies with fear campaigns in the media while pushing legislation that would hinder their development or, at worst, make them illegal, as China has already done. She has recently begun to push for a CBDC in the U.S.
Another strategy has become clear in recent months. While attempting to minimize the role of cryptocurrency innovation, the current administration is working to shift the Overton window towards centralized control by testing the political waters with price controls that desensitize Americans to the idea of central planning. All that’s left is to empower the Fed with a digital currency—and the U.S. will have created its own 21st-century surveillance regime.
Which way forward?
Crypto is a long way from its full potential. We get to that full potential with an intelligent government that regulates thoughtfully, with the guidance of industry experts, to prevent the worst use-cases and the most egregious excesses while recognizing that freedom and openness are essential to healthy innovation. Incentivizing entrepreneurs and large companies alike are crucial to enabling innovation and giving the U.S. its best chance to remain competitive on the world stage as the dollar comes to the end of its reign as the global reserve currency.
CBDC and the fragility of a cashless society [The Hill]
The official currency of China is the Renminbi (RMB), which includes bills, coins, and digital currencies. It is also known as the Chinese Yuan (CNY). The RMB is the currency, while CNY is the country’s economic and financial system unit of account. The terms are often used interchangeably.