Q&A of the Day – President Trump’s Central Bank Digital Currency Order
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
iHeartRadio: Use the Talkback feature – the microphone button on our station’s page in the iHeart app.
Today’s Entry: Submitted via talkback asking about the risks of Central Bank Digital Currencies.
Bottom Line: One of the many executive orders signed by President Trump during his first week was an order that addresses concerns about Central Bank Digital Currencies. The directive was within the president’s: Executive Order—Strengthening American Leadership in Digital Financial Technology. As is stated within the order...
- taking measures to protect Americans from the risks of Central Bank Digital Currencies (CBDCs), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States.
Maybe you’re familiar with the idea of central bank digital currencies, but there’s also a good chance that you’re not. So, let’s start there and take a closer look at what it is that President Trump has stated he’s protecting us from...
- A Central Bank Digital Currency is a digital currency issued by a country’s central bank that is treated as equal to a country’s fiat currency.
So effectively, if we moved to a digital currency-based system, we’d replace our existing monetary supply with a new digital token. How would that operate? According to the Federal Reserve’s research paper on the subject:
- CBDC transactions would need to be final and completed in real time, allowing users to make payments to one another using a risk-free asset. Individuals, businesses, and governments could potentially use a CBDC to make basic purchases of goods and services or pay bills, and governments could use a CBDC to collect taxes or make benefit payments directly to citizens. Additionally, a CBDC could potentially be programmed to, for example, deliver payments at certain times.
As of today, there are three countries that have launched CBDC’s: the Bahamas, Jamaica and Nigeria. There are also 134 countries, including the United States, that have been studying them.
So, about that... The Federal Reserve’s most recent position on the potential issuance of a Central Bank Digital Currency is this:
- While the Federal Reserve has made no decisions on whether to pursue or implement a central bank digital currency, or CBDC, we have been exploring the potential benefits and risks of CBDCs from a variety of angles, including through technological research and experimentation. Our key focus is on whether and how a CBDC could improve on an already safe and efficient U.S. domestic payments system.
Among the potential benefits the Federal Reserve suggests are possible with a move to a central bank digital currency...
- Safely Meet Future Needs and Demands for Payment Services
- Improvements to Cross-Border Payments
- Support the Dollar’s International Role
- Financial Inclusion
- Extend Public Access to Safe Central Bank Money
As for potential risks as studied by the Fed:
- Changes to Financial-Sector Market Structure
- Safety and Stability of the Financial System
- Efficacy of Monetary Policy Implementation
- Privacy and Data Protection and the Prevention of Financial Crimes
- Operational Resilience and Cybersecurity
Even if you’re to take the potential benefits as outlined by the Federal Reserve at face value (and I don’t btw, for example - “financial inclusion” - seriously?), it’s clear that the gravity of the risks far outweighs the perceived benefits. This is why President Trump, a crypto advocate who even has his own token is opposed to CBDC’s. As for what President Trump’s has put into motion through his executive order...
He’s established the President’s Working Group on Digital Asset Markets which will include the Treasury Secretary, Attorney General, Secretary of Commerce, Secretary of Homeland Security, Director of Office of Management and Budget among other administration officials that are to study and produce a report to the president within 180 days that recommends regulatory and legislative proposals for digital currencies.
So basically, as it pertains to CBDC’s, President Trump has used executive action to prevent the Federal Reserve from creating a digital currency during his administration, and he’s calling on his newly established working group to make recommendations for congress to act on legislatively that may potentially ban the implementation of a CBDC permanently.
As for my thoughts on the matter... Most people already transact digitally. Only 16% of transactions are cash transactions and they account for only 12% of the total value of transactions. In other words, in terms of the convenience and preferences that could come with a digitized currency system – we're already there. There’s no need for a Central Bank Digital Currency to achieve those benefits. Instead, what’s risked is that an unaccountable central bank, the Federal Reserve, would have the ability to set the terms of how the currency could be used, who could use it, etc.
Already we’ve seen big banks create their own versions of “social credit scores” of sorts in flagging transactions for guns, ammo, support of conservative organizations, etc. Turning that potential over to the central bank regulator is an enormous risk we should never undertake. President Trump is right about this.