States Setting the Table for a Central Bank Digital Currency, Part I

Uniform Commercial Code changes are a CBDC Trojan horse

This is the first of a two-part series that examines the potential ramifications of proposed legislation in several states that would lay the foundation for the future implementation of a central bank digital currency. This part defines a CBDC and describes its potential use to modify citizen behavior for ideological reasons.

Among the myriad policy pronouncements of the authoritarian Biden administration is one that should give every American pause for concern. Without public debate or involvement by the US Congress, Biden has signed Executive Order 14067, Ensuring Responsible Development of Digital Assets, on 9 March 2022 that the White House advertises as a ”whole-of-government approach to addressing the risks and harnessing the potential benefits of digital assets and their underlying technology.” Buried in the altruistic fluff is the real purpose of the EO: “[to] explore a U.S. Central Bank Digital Currency (CBDC).”

Let us examine the topic and the potential pitfalls.

WHAT IS A CBDC?

A central bank is defined as “a financial institution given privileged control over the production and distribution of money and credit for a nation,” including the issuance and regulation of the money supply and setting of interest rates on bonds and loans. The Federal Reserve System acts as the central bank for the US and has a legal monopoly on the issue of bank notes and cash. A key function is to regulate the reserve requirements for commercial banks, i.e., how much cash/liquidity that banks must keep on hand and how much banks can loan out based on deposits.

The US dollar is a “fiat currency,” meaning, it is money that derives its value from the decisions of Federal Reserve – or, more commonly, through the “full faith and trust in the government” – as opposed to the value of reserves of hard assets such as gold. The US dollar was backed by gold until President Richard Nixon ended dollar convertibility to gold in August 1971.

Fiat currencies facilitate inflation as a debt management tool for the government. Consider the purchasing power of a dollar in 1960 versus 2023. An online inflation calculator has determined that the purchasing power of one dollar in 1960 is equivalent to $10.20 today.

A central bank digital currency is a digital form of a country’s fiat currency issued and regulated by the central bank, or, in the case of the US, a digital dollar bill. Authoritarians in government are keen on implementing a CBDC to facilitate future monitoring and control of all financial transactions, as noted by the Gatestone Institute: “[implementing a CBDC would allow] any transfer of funds to family, friends, charities, or clients would be able to be tracked by the nation's central bank that issued this virtual money.” And tracking transactions is the first step in controlling who can buy and sell in the future. This is precisely in line with the social controls system being implemented in communist China.

Note that there are altruistic reasons for implementing a CBDC, and there are supporters across the ideological spectrum. However, good intentions can be perverted over time by those who seek to use the federal government to achieve their ideological and political goals. A good example of that perversion has been the use of the Patriot Act to refocus the US surveillance state on American citizens, which has allowed the Democrats to go after their political enemies with impunity under the rubric of stamping out “domestic terrorists” (defined, of course, by themselves). Similarly, once a CBDC has been implemented, future governments could easily use the transaction-monitoring capabilities to authorize or de-authorize financial transactions based on ideological/political considerations. A CBDC sets the table for this probability. The only way to preclude this from happening is to not implement a CBDC in the first place.

The Biden administration has already indicated how they plan on using a CBDC to mandate the political behavior they seek to engender in Americans. As reported in The Hill, “Biden’s executive order states that the CBDC and other policies governing digital assets must mitigate ‘climate change and pollution’ and promote ‘financial inclusion and equity.’” This is a clear example of their authoritarian impulse to bypass Congress to implement regulations affecting daily commerce in favor of their ideological objectives. What comes next after mandating and monitoring green-related transactions? Other arbitrary ideologically driven rules are highly probable in the future, e.g., prohibiting certain types of political speech and dissension, and implementing a CBDC will make it easy to do.

In competition with the digital dollar are Bitcoin and cryptocurrencies, which have been developed as private means to facilitate truly transportable and anonymized financial transactions, i.e., without “big government oversight and regulation.” Bitcoin was developed as a response to the 2008 recession. The purpose was to create a new monetary system, based not on trust in a central bank or government, but in math and technology, that would retain its value and not be subject to the political whims of governments that seek to inflate their way out of long-term debt. It has been referred to as “a new electronic cash system that’s fully peer-to-peer, with no trusted third party.” In short, a major purpose is to avoid government regulation and fiat currency inflation by trading in instruments that retain and accrue value, unlike fiat currencies.

The Biden administration’s CBDC initiative in the US could be construed as a government-initiated monetary reform that uses Bitcoin technology to create a government-owned proprietary cryptocurrency that is managed by the US Federal Reserve System. And a key part of that reform effort is to bring Bitcoin and cryptocurrencies under the umbrella of CBDC regulation by the Fed through insidious changes to the Uniform Commercial Code. The result will be an empowerment of the Federal Reserve at the expense of the freedoms and liberties of individual Americans, as noted by The Wall Street Journal.

This ends Part I. Part II will describe the legislation introduced in several states to lay the groundwork for implementing a CBDC in the future via terminology changes to the Uniform Commercial Code.

The end.