Will U.S. Trade Cash for CBDCs? Fed Sends Mixed Messages
Despite recent statements to the contrary by Federal Reserve Chair Jerome Powell, the U.S. Federal Reserve appears to be proceeding with the development of central bank digital currency (CBDC) infrastructure. Critics weigh in on Powell’s statements and what CBDCs — and going cashless — would mean for U.S. citizens.
The U.S. Federal Reserve (the Fed) appears to be proceeding with the development of central bank digital currency (CBDC) infrastructure — including hiring software developers — despite recent statements to the contrary by Federal Reserve Chair Jerome Powell.
“People don’t need to worry about a central bank digital currency, nothing like that is remotely close to happening anytime soon,” Powell said in his March 7 testimony before the Senate Banking Committee.
“If we were to ever do something like this, and we’re a very long way from even thinking about it, we would do this through the banking system,” Powell said. “The last thing … we the Federal Reserve would want would be to have individual accounts for all Americans.”
Catherine Austin Fitts, founder and publisher of the Solari Report and former U.S. assistant secretary of housing and urban development, told The Defender, “Powell’s latest language is slippery — more slippery than we have seen from him.”
In June 2023 comments about CBDCs, for example, Powell said that the Fed is “doing a great deal of work,” adding that “it’s something we really need to explore as a country.”
‘The closing of the totalitarian circle’
The Atlantic Council, a think tank that says it “promotes constructive leadership and engagement in international affairs based on the Atlantic Community’s central role in meeting global challenges,” defines a CBDC as “virtual money backed and issued by a central bank.”
According to the council, “In every country with an advanced retail CBDC project, CBDCs are intermediated, meaning they are distributed through banks, financial institutions, and payments service providers.”
In China though, “there is also an option for a direct CBDC — which can be accessed through a central bank application,” the Atlantic Council states.
Fitts, an outspoken critic of CBDCs, said they are “essential for the bankers to institute taxation without representation” and would allow “bankers to use AI [artificial intelligence] and software to institute a wide number of mandates, policies, rules and enforcement.”
CBDCs also would allow bankers to significantly lower retirement benefits and government obligations and end property rights and achieve the World Economic Forum’s (WEF) promise to “own nothing and be happy,” Fitts said. And they would allow them “to assert complete control over travel and labor behavior.”
According to Fitts, mandates, policies and rules could include “digital health passes” — sometimes referred to as “vaccine passports” — and climate change-related restrictions, including restrictions on transactions outside of the boundaries of so-called “15-minute cities,” Fitts added.
Michael Rectenwald, Ph.D., author of “Google Archipelago: The Digital Gulag and the Simulation of Freedom,” told The Defender that CBDCs represent “the closing of the totalitarian circle.”
“Every transaction involving CBDC would be transparent to central banks, regardless of whether a commercial bank acts as an intermediary,” Rectenwald said. “The Federal Reserve could exercise centralized surveillance and control over spending, debt and savings. Transaction privacy will be obliterated” because the system would likely be linked to a broader “digital identity system.”
Fitts put it this way: “Ultimately, the use of your money would depend on being compliant with every rule and regulation under the sun. It would make insect-based foods and vaccine mandates easily adopted and enforced.”
Rectenwald said a person’s digital identity could store health information, including vaccine status. It might also include a carbon footprint tracking element that could be used to determine whether someone may buy gas, meat or “anything else deemed to exceed one’s allotment in greenhouse gas emissions.”
Fed proceeding with efforts to develop CBDC despite claims to the contrary
In March 2022, the Biden administration issued an Executive Order, which placed “the highest urgency on research and development efforts into the potential design and deployment options” of CBDC.
During a September 2022 symposium co-organized by the Federal Reserve Bank of San Francisco, Sunayna Tuteja, the Fed’s chief innovation officer, said CBDCs in the U.S. are “very much in the research and interrogation phase.”
According to Decrypt, “The Fed has contemplated a CBDC since 2017,” and a pilot program, the regulated liability network, launched in November 2023, allows banks to “work closely with the Federal Reserve Bank of New York on testing a digital currency platform.”
Mastercard and Wells Fargo are among the participating banks.
A collaboration between the Fed and the Bank of International Settlements, launched on or around 2021, led to the formation of the New York Innovation Center (NYIC), housed within the Federal Reserve Bank of New York, listing as a focus area the exploration of “the potential for digital currencies to improve payments performance.”
“NYIC generates insights into high-value central bank-related opportunities through technical research, experimentation, and prototyping, to drive advancements in central banking and enhance the functioning of the global financial system,” according to the Bank of International Settlements.
One NYIC initiative, Project Cedar, seeks to “develop a technical framework for a theoretical wholesale central bank digital currency … in the Federal Reserve context.”
NYIC also “is participating in a proof-of-concept project along with members of the private sector to explore the feasibility of an interoperable network of digital central bank liabilities and commercial bank digital money using distributed ledger technology.”
In another collaboration, the Federal Reserve Bank of Boston and MITcompleted Project Hamilton, which explored “the technical feasibility” of a potential CBDC.
Through Project Hamilton, an open-source CBDC software platform known as OpenCBDC was developed, along with a white paper “on a transaction processor for a theoretical high-performance and resilient CBDC.”
And in job listings posted to LinkedIn and the Federal Reserve System Careers website last month, the San Francisco Fed is seeking software developers to contribute to the research and design of a CBDC. In July 2023, the San Francisco Fed published a job listing on Indeed.comseeking a crypto architect for a CBDC project.
“We are looking for a Lead Application Developer to implement example systems related to a CBDC. You will engage directly with management, other developers on the team, development operations teams, and vendors to ensure the Federal Reserve is well-positioned to design, develop, and implement technology to support a CBDC as may be required by the Board of Governors,” the listing read.
Cointelegraph noted that these “recruitment efforts contradict the public stance of the Federal Reserve Board of Governors on CBDCs.”
U.S., other countries promise not to eliminate cash, but …
According to the Atlantic Council’s CBDC tracker, as of this month, “134 countries & currency units, representing 98% of global GDP, are exploring a CBDC.” In May 2020, “that number was only 35.” At present, “68 countries are in the advanced phase of exploration — development, pilot, or launch,” including 19 of the members of the G20.
The Atlantic Council noted that three countries — the Bahamas, Jamaica and Nigeria — have fully launched a CBDC, while high-profile CBDC projects include the European Union’s digital euro, currently in a “2-year preparation stage,” and China’s “e-CNY,” or digital yuan, currently “being trialled with 260 million people across 25 cities.”
Fitts called Nigeria “the worst example” of what CBDC deployment could look like in practice. She cited a September 2023 Mises Institute report stating that after the transition of the country’s currency, the naira, into a CBDC in 2022, the “poorer segment of the population (over half of the people)” were, in effect, left out of the system, while paper banknotes were invalidated and worthless. Violent riots ensued in early 2023.
Tim Hinchliffe, editor of The Sociable, cited Nigeria as an example of how governments have “shifted the goal posts” — initially promising to introduce CBDC as an instrument that would coexist with cash, before later moving to eliminate physical cash.
“They say CBDCs won’t eliminate cash, but they can make life very difficult for you if you choose to opt out,” Hinchliffe said. “Take a look at Nigeria for example. A year after introducing the eNaira, adoption was at .5%. Then the Central Bank of Nigeria instructed private banks and financial institutions to put caps on cash withdrawals in order to pressure people to adopt the eNaira … this was a major disruptor and there was a lot of backlash.”
In 2012, Nigeria’s Central Bank issued a statement on a “cash-less” Nigeria that aimed to reduce — but not eliminate — the amount of physical cash in circulation, Hinchliffe said. But in January 2023, the Nigerian government said, “Nigeria will become a full non-cash economy by March 1, 2023.”
Fitts said another good example of the drive toward CBDCs is “India, where Prime Minister Narendra Modi brought in a lot of the larger cash notes, pushing for a digital system.” In 2016, the two largest denominations of rupee notes were eliminated.
According to Reuters, the ban “disrupted the daily lives of hundreds of millions of Indians. The BBC reported that the move “damaged India’s economy.”
In January, the Eastern Caribbean Currency Union, which consists of eight countries, shut down its CBDC project. According to Reuters, this occurred “after problems left users unable to access digital wallets.”
A January 2022 white paper by the Fed claims a U.S. CBDC would “complement, rather than replace, current forms of money and methods for providing financial services.”
Yet, Fitts pointed to an October 2020 statement by Agustín Carstens, general manager of the Bank of International Settlements, who said “general use” of CBDCs would have a “huge difference” with cash.
“For instance, with cash, we don’t know who is using a $100 bill today,” Carstens said. “A key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability [cash], and also, we will have the technology to enforce that.”
A 2023 “Blueprint for the future monetary system” from the Bank of International Settlements proposes all assets — such as private property — be “tokenised” into digital assets on a “programmable platform.”
“The ultimate goal is to eliminate cash in order to usher in programmable CBDCs tied to digital ID. This allows for total surveillance and control over personal transactions,” Hinchliffe said, citing a 2017 WEF article stating that the “gradual obsolescence of paper currency” is one of the “characteristics of a well-designed CBDC.”
Speaking at Columbia University last year, Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, said, “If you want to impose negative interest rates … if you want to directly tax customer accounts, you can do that” with a CBDC. He added, “I get why China would be interested. Why would the American people be for that?”
Yet, some countries continue to place restrictions on the use of cash. Greece, for instance, prohibited cash transactions exceeding 500 euros ($544) in December 2023, with fines of up to twice the value of the transaction. In 2020, Greece required 30% of people’s purchasesto be made using a debit or credit card, with fines for non-compliance.
But some countries appear to be reversing this trend. According to independent journalist Peter Imanuelsen, Norway has proposed legislation that would require businesses to accept physical cash as a form of payment. In January, the Swedish government began exploring “ideas to support people’s right to pay with physical cash.”
Pushback has begun in the U.S. as well. Earlier this month, attorney Ray Flores, senior outside counsel for Children’s Health Defense, sued the National Park Service on behalf of two plaintiffs, challenging its cashless fee collection policy. Children’s Health Defense is financially supporting the lawsuit.
U.S. still behind many other countries
CBDC proponents “say digital currencies will allow new functionality and provide an alternative to physical cash, which seems in terminal decline,” Reuters reported. They acknowledged, however, that CBDCs have “also fuelled protests in a number of countries over the potential for government snooping.”
The Atlantic Council lists “reasons” for introducing CBDC, including “promoting financial inclusion by providing easy and safer access to money for unbanked and underbanked populations,” “increasing efficiency in payments and lowering transaction costs” and “creating programmable money and improving transparency in money flows.”
“Programmability is a key feature of a CBDC, which makes it very different from physical cash,” Hinchliffe said. “Private banks and credit card companies will have all the power to program CBDCs, which may include restricting what you can buy, where and when, much like expirable coupons that only work in certain places.”
“Using geographic information system (GIS) data and merchant category codes (MCC), you can institute a system that can enforce the equivalent of the COVID-19 pandemic,” Fitts said. “Your money only works for permitted uses and can be turned off.”
Still, for now at least, progress on CBDCs seems to have stalled in the U.S., Fitts said, because of “the First Amendment, the 2nd Amendment and the constitutional powers of the states.”
“This is why there is so much effort to trash the First and 2nd Amendments and to buy the states out of enforcing the federal and state constitutions,” she said.
The Atlantic Council also characterizes U.S. progress toward CBDCs as “stalled.”
According to the council, “there is a widening gap between the US and G7 banks, including the Bank of England and the Bank of Japan.”
The council also pointed out that during the ongoing U.S. presidential campaign, “several candidates” have expressed opposition to CBDCs.
Michael Nevradakis, Ph.D., based in Athens, Greece, is a senior reporter for The Defender and part of the rotation of hosts for CHD.TV’s “Good Morning CHD.”
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