The Reactionary Political Theater of CBDC Bans

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Florida has essentially banned the use of central bank digital currencies (CBDCs) in the state, and its regional neighbor North Carolina, along with several other US states, looks likely to follow suit soon. This is a major legal breakthrough in what has been largely a rhetorical battle: the US government, as it stands, is looking at CBDCs, but it is still a long way, if ever, from actually deploy the widely misunderstood technology.

As the 2024 election cycle heats up, CBDCs, a broad term covering a number of ways to digitize fiat currencies, which won’t necessarily use blockchain or be used by average citizens, have become a hot topic. of lightning. Political critics, largely but not exclusively Republican, have argued that a digital dollar would be a nightmare for financial privacy, a tool that strengthens the state while exacerbating existing problems with financial inclusion.

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More than 100 countries are researching CBDCs, but only two, the Bahamas Sand Dollar and the Bank of Jamaica JAM-DEX, are deployed. There are several fairly advanced studies, including a two-year European Union project, a multinational initiative in the Middle East called Project Aber and, perhaps most worryingly for US politicians, the Chinese digital yuan, which has made its world debut during the last Summer Olympics, among dozens of other ongoing pilot and proof-of-concept programs.

What all of this research has revealed is complicated. There are legitimate risks associated with CBDCs and theoretical impacts that could reshape the financial industry as we know it. A retail CBDC, for example, essentially a checking account held at the Federal Reserve that any U.S. resident would be entitled to use, would compete with private banks and credit unions, according to numerous studies.

Would that be really bad? At least on my side, I’m a proud supporter of broad, universal programs that allow people access to things, whether it’s governments setting aside land for the public good or systems like bitcoin and ethereum that do something similar for finance. Specifically, CBDCs would be large systems where the full range of outcomes is not currently understood.

That hasn’t stopped people from definitively saying that the theoretical risks of a CBDC outweigh the benefits. Circle, the stablecoin issuer, has come out strongly against them. The same goes for Florida Governor Ron DeSantis, an eventual Republican presidential candidate, who will soon have the chance to pass the bill he proposed to Florida lawmakers banning CBDCs in the state. .

While a statement from Circle is definitely worth considering, the company has an equally significant financial incentive to oppose CBDCs (which could compete with its USDC token) as well as a reason to side with them as as a potential technology provider for the global development of CBDCs. the acting of actors like DeSantis is truly unfortunate.

Last March, the Biden administration announced plans to assess the benefits and risks of central bank digital currencies, joining dozens of other initiatives around the world. This being America, and DeSantis being the opportunistic politician that he is, the Governor of Florida almost immediately proposed legislation banning CBDCs in the state. A number of similar initiatives soon followed (including a media event of Republican US Senator from Texas, Ted Cruz, being the opportunistic politician that he is).

And this being America, where the political process bogs down everything useful but speeds up the most dysfunctional laws, these state legislative bans on CBDCs are coming. Many in crypto will see this as a victory, having convinced themselves that all state art is the work of the Devils. But I urge humility and ask for patience, not only because the verdict is not out on CBDCs, but because the laws that are proposed and introduced could end up doing more harm.

North Carolina officials will block the state from participating in potential CBDC experiments. So when did research become a bad thing? Florida has literally redefined what money is to exclude CBDCs. While the Bitcoin Policy Institute praised DeSantis’ action in particular, it also released a report stating that all of this anti-CBDC fervor could end up hampering industry growth by introducing poorly written rules or pushing politicians to reject pro-crypto reforms.

This is to say nothing of the Sinophobia latent in many reviews of CBDCs, which often say that a digital dollar or digital euro would be used as a bully tool because CBDCs have more or less become synonymous with the digital yuan, a topic my colleague Emily Parker explored in a recent article. Or the idea that CBDCs could prevent the kinds of financial censorship/reform that critics predict, precisely because a CBDC may be subject to constitutional protections that banks don’t have to follow.

Ultimately, CBDCs may not be recommended in the United States or elsewhere. But this is something countries should decide after considering the evidence. The only thing worse than political theater is being forcefully stuck as a character in someone else’s stupid political play.

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