Cryptocurrency was the first major innovation in the nature of money since the US adopted a fiat currency when it fully abandoned the gold standard in 1971, after which the dollar was backed by faith in the US government rather than a commodity. The dollar is now a dollar because the Treasury says it is, not because it will give anyone gold for their dollars.
The USD’s value against other currencies is determined by supply and demand in the global foreign-exchange (forex) market. Cryptocurrency, divorced from any government, is based on math and cryptography. Its daily value is determined by supply and demand in a global 24/7 market.
Cryptocurrency’s a “sexy” topic. Teenagers have become millionaires overnight by buying it, plus it has an “exclusive club” feel, celebrity involvement, and a suggestion of rebellion against banks, governments, and “the system.” But there's a newer currency innovation that’s still a blip on the media radar. Central Bank Digital Currencies, which countries are racing to implement across the globe, are the opposite of cryptocurrencies. They’re centralized, fully-surveilled government money designed specifically for control.
Whereas cryptocurrency holders face almost no risk of confiscation if they hold their keys, with CBDC confiscation is possible at any time with a few keystrokes from a government overseer.
The CBDC is a digital form of a country’s currency, issued and controlled by its central bank, designed to be centrally programmable and traceable. CBDC dollars can be stored on a phone app or something resembling a debit card. In general, governments hate cryptocurrencies and cash because they can't surveil their usage. CBDCs, on the other hand, provide a perfect audit trail, and a mechanism to control how and where people spend their money.
The good news for Americans concerned with government overreach is that Donald Trump has issued an executive order halting all federal work on a retail CBDC. The US remains among a shrinking group of advanced nations that’ve researched CBDCs but stepped back from them without even instituting pilot programs. And while the global pace of advancing digital currencies resembles a leisurely stroll at this point, that's exactly how the Industrial Revolution started off. Something like a severe financial crisis triggering bank runs could make CBDCs, which are immune from bank insolvencies, look attractive.
At this point, only three nations have launched formal CBDCs—The Bahamas (the Sand Dollar), Jamaica (JAM‑DEX), and Nigeria (e‑Naira). Sizeable economies like India, Russia, Brazil, Turkey, and South Korea are all in pilot or advanced-development stages. China's e-CNY, also known as the digital yuan, is the world's most advanced and largest-scale CBDC pilot program, with around 600 million users and rollouts in major cities all over the nation.
This development will eventually place pressure on the US for accelerated digital dollar development to counter the inevitable erosion of the dollar's hegemony brought about by the introduction of an alternative system for international payments and trade that bypasses the US-dominated financial infrastructure. If expanded broadly enough, there's a danger that the e-CNY, which the authoritarian CCP sees as another instrument of control over its citizens, could lock out the dollar from Belt and Road deals. That would be a major blow to the currency.
For a real-world case study highlighting the authoritarian dangers of CBDCs, look to Canada in late-January 2022, when thousands of truck drivers and their supporters formed the Freedom Convoy to converge on Ottawa to protest federal Covid vaccine mandates for cross-border truckers. Prime Minister Justin Trudeau invoked the Emergencies Act for the first time in Canadian history, which authorized banks and financial institutions to freeze or suspend accounts linked to the protests without so much as a court order. A digitized American currency would make it much easier for Washington D.C. to impose a more granular denial of access to personal savings than the current banking system would.
If the US is going to adopt a digital currency program, it’ll be via the efforts of the Democrats, not Republicans. Maxine Waters (D‑CA), top Democrat on the House Financial Services Committee, strongly opposed a bill designed to ban CBDC research and issuance. In 2022, Stephen Lynch (D‑MA), ranking member of House Subcommittee on Digital Assets, introduced the “ECASH Act,” intended as a pilot program for a digital‑dollar system. Joe Biden’s Treasury Secretary, Janet Yellen, recommended advancing "policy and technical work" on a digital currency to prepare for a future determination that would be in the national interest.
Who decides what the national interest is? The party in power does. Democrats focus on the efficiencies and currency benefits of the CBDC, which provides surveillance possibilities that also interest them, while Republicans feel it's in the national interest to be concerned with privacy and control issues. They imagine a faceless bureaucrat monitoring citizens with the power to cancel any transaction or donation to organizations the government doesn't approve of. Every dollar Americans spend could be visible to and tracked by watchful eyes in Washington.
There would be safety measures to preserve privacy, but 9/11 and the Patriot Act have already taught us that such measures will be revoked as soon as the next national emergency arrives. It's been 24 years since that legislation was enacted, and how many of the rights that it took away from us have been given back?
Implementation of a digital dollar system could be the first step in eliminating cash from the economy, an authoritarian’s dream that would be a serious incursion into the civil rights of Americans. It’d also allow the government to impose negative interest rates directly on individuals to stimulate the economy. Under the current system, people can withdraw their savings from a bank if that happens, but CBDCs would allow the government to deduct the negative interest from a person's digital balance on a monthly basis, meaning the government has the power to control personal savings.
Politicians will use seductive language to sell CBDCs, touting efficiencies and enhanced global competitiveness. But Americans should remember that the digital currency gives the government a kill-switch over their money. The choice is going to be between ceding to the government what it wants, or preserving one's right to economic dependence. Americans are safe now, but one day they'll have to make that choice.