This week, Florida Governor Ron DeSantis proposed legislation to try to prevent the federal government from deploying a central bank digital currency (CBDC) in his state. That move reflects an unfortunate uptick in politicization and is ultimately unlikely to succeed.
Alongside a banner blaring “Big Brother’s digital dollar,” Gov. DeSantis – expected to challenge former President Donald Trump for the Republican nomination for president in 2024 – claims CBDCs can enable surveillance by the federal government, threatening individual privacy and economic freedom. His draft would prohibit acceptance of an American CBDC under Florida’s Uniform Commercial Code and enact other limits against foreign countries’ CBDCs. Moreover, he called upon “likeminded states to join Florida in adopting similar prohibitions … to fight back against this [CBDC] concept nationwide.”
JP Schnapper-Casteras is a nonresident senior fellow at the Atlantic Council’s GeoEconomics Center and a practicing attorney.
At one level, his concerns are partly understandable. Depending on how it is technically designed and legally regulated, a consumer-facing CBDC could potentially amass and store large volumes of personal information about individuals’ daily purchases and movements. Domestically, groups including the American Civil Liberties Union have repeatedly stressed the importance of maintaining cash-like privacy, should the executive branch and Congress move forward with a digital dollar.
Internationally, there are well-grounded fears that CBDCs can be used, particularly by undemocratic countries, as a means of pervasive surveillance and control of their citizenry.
A 2022 Biden administration executive order on digital assets already mentioned privacy nine times. Still, the Federal Reserve Board and other agencies could do more to take privacy seriously, for instance by openly consulting with nonprofit groups and reassuring the public they have little interest in a vast national repository of consumer data.
On another level, DeSantis’ announcement is emblematic of the broader politics around, and antagonism toward, the Federal Reserve. For example, this week, Sen. Mike Lee (R-Utah), who also opposes CBDCs, tweeted out, “End the Fed.” Other members of the Republican Party have recently lambasted the Fed’s decisions on hiking interest rates and have even proposed eliminating the Fed’s role in overseeing banks across the country. On Wednesday, U.S. Sen. Ted Cruz (R-Texas) proposed federal legislation that would block the Fed from issuing a CBDC, mirroring a bill that has been introduced in the House of Representatives by Rep. Tom Emmer (R-Minn.), the Majority Whip and longtime crypto advocate.
Read more: John Kiff, Jonas Gross – Are There Tech Solutions to the Privacy and Compliance Trade-Offs for CBDCs?
DeSantis’ bill politicizes an issue that need not be so political. Fed Chair Jerome Powell, who was Undersecretary of the Treasury under President George H.W. Bush and named Fed chair by President Trump, has greenlighted certain research around CBDCs but stressed he would ultimately need congressional authorization and public support before any CBDC plan could move forward. Even Trump son-in-law Jared Kushner reportedly floated the idea of a digital dollar during the Trump administration.
Around the world, CBDCs are being explored by 114 countries, representing over 95% of global GDP, including 18 Group of 20 (G-20) countries, according to the Atlantic Council. The Biden administration’s latest CBDC efforts are in a sense catching up with what other nations are already doing. It remains uncertain whether the U.S. government – under either political party – will actually adopt a consumer-facing CBDC as opposed to focusing on improving technology for bank-to-bank transfers, known as a wholesale CBDC.
It will be sad and somewhat surprising if CBDCs become the latest battleground for a culture war. But it would not be entirely unprecedented, in light of how payment providers and banks have periodically turned into cultural flashpoints in the last decade. But it would be curious to see CBDCs – a technology the Fed has not even solidly developed, let alone clearly decided to promote – turn into a hot-button issue for a national presidential campaign. It’s a relatively niche issue that until now has mostly been taken up by policy wonks like myself.
Read more: Lipsa Das – What Will 2023 Bring for CBDCs?
In the end, DeSantis’ legislation is unlikely to succeed for other reasons. The U.S. Constitution definitively gives Congress the power to “coin Money, regulate the Value thereof, and of foreign Coin.” Other federal laws make clear that federal law generally preempts state laws on banking. Each of the 50 states would not be able to ban local stores from accepting pennies as legal tender. Here too, if and when Congress decides to act on a digital dollar, that would trump DeSantis’ legislation under the Constitution’s Supremacy Clause.
Whatever becomes of DeSantis’ proposal, Democrats and Republicans alike should take this opportunity to delve deeper into the substantive privacy issues implicated by a digital dollar. That is ripe for a national public conversation and serious interagency effort, and a subject that could ultimately impact the daily lives of millions of Americans.
Source: Business Insider