Central Bank Digital Currencies A Foundational Threat To America's Economic Systems: Think Tank

The article argues that a U.S. CBDC would threaten citizens' financial privacy and personal liberty.

According to a Cato Institute analysis, central bank digital currencies (CBDCs), which are backed by the US Federal Reserve, pose a fundamental threat to America's economy systems, with no positive outcomes.

A U.S. CBDC threatens 'core liberties' of citizens, from privacy in financial matters to personal freedom.

The Institute's Tuesday assessment report stated that despite the fact that there is no good reason for the U.S. Government to issue a CBDC, 'the costs and benefits are so low', significant efforts are made by officials of the government and central banks to launch the digital money 'in an effort to consolidate government control over payment systems'.

'As entrenched and entrenched as the CBDC effort in the United States may be, it would usurp private sector and threaten Americans' freedoms.

"Therefore it should not have a place in the American Economy." Congress should prohibit the Federal Reserve or the Department of the Treasury issuing CBDCs in any form.

The Federal Reserve hasn't made any plans definitive or set a date for the launch of the CBDC. However, it hasn't hidden its enthusiasm. The Federal Reserve has heavily promoted the benefits of a CBDC, such as'safer and faster'. However, it is not focusing on its disadvantages.

The Biden administration also has thrown its backing behind the CBDC Project.

In September, a paper was published analyzing the potential of introducing a new digital dollar.

The White House Office of Science and Technology Policy outlined the benefits of a CBDC. These include facilitating low-cost and efficient transactions, increasing access to the financial sector, and supporting continued US centrality in the international financial system.

Technical Framework

There are many possibilities for a U.S. CBDC.

Financial Freedom and Privacy

Over two-thirds of 2,052 letters sent by citizens opposing the Fed's plans for a digital currency show that the public sentiment is against the introduction of a CBDC. According to CATO analysis of comments, people were worried that CBDCs would pose a'substantial threat' to financial freedom, privacy and the foundation of the banking industry.

A CBDC provides a direct link to the federal government, allowing it to see every financial transaction.

The project is a direct assault on basic privacy as protected by U.S. Constitution.

The buffer that is currently provided by institutions such as banks and payment services between the financial activities of an average citizen and government intrusion will cease to exist immediately, since 'all financial information would only be a keystroke' away.

This unrestrained access will lead to the establishment of government control. It could be preemptive (prohibiting or limiting purchases), behavior-based (spurring purchases and curbing them), or punitive.

The government can, for example, limit the purchase of 'essentials' during a state-imposed lockdown, restrict gun ownership, or even prevent an individual from accessing their own funds.

"Apart from the basic programability that a CBDC will offer for social control and political control, its most common feature is the ability of paying both positive and negative rates of interest to curb and stimulate purchases." This is impossible with cash, which is one of the primary reasons CBDC advocates are calling for the elimination of cash from the system.

Cybersecurity and Free Markets

Federal Reserve Vice Chair Lael brainard said that CBDCs would disrupt the banking system if they were widely used, because people would bypass retail institutions and make direct deposits to central banks.

CATO concluded that people will most likely leave traditional banks because it is 'difficult (if not impossible), to compete with government.

CBDCs would have a monopolistic grip on the market in such a scenario. CATO stated that governments all over the world are keen to eliminate alternative payment avenues such as cryptocurrencies.

CBDCs are susceptible to cyber-attacks and malicious hacking, which is similar to crypto.

A digital dollar centralized makes an 'attractive cyberattack target by giving threat actors prominent platform to focus on.

Attacks on banks are common, but they pale in comparison to the breach of 333,000,000 Americans' financial information by the CBDC.

FedNow and CBDC

The Federal Reserve announced on March 15 that the FedNow Service will begin operating in July. FedNow is a nationwide instant payment solution for financial institutions that participate and their industry partners. The service allows users to'send or receive instant payments any time' and have full access to their funds.

Fed Governor Michelle Bowman stated last year that FedNow can weaken CBDC resistance by offering some of same basic services as a digital currency -- a first step towards full CBDC adoption.

In a tweet, Jordan Schachtel of Substack's 'The Dossier,' stated that 'FedNow' appears to be a CBDC prototype.

While instant 24/7 payments may seem good, leaning on a credit-based system has implications. FedNow can easily transform into a surveillance system.

CATO recommends that Congress limit Treasury Department's ability to expand current offerings, prohibiting the agency from offering CBDCs and maintaining or offering accounts for individuals. The agency is prevented from "further invading the private sector" despite its promises of faster payments and financial inclusion.