CONGRESS INTRODUCES A CRYPTO BILL BANNING FEDERAL RESERVE
Jerome Powell, chairman of the Federal Reserve has indicated plans to release a report about the Fed’s plans to create a “digital dollar,” as other nations around the world race to create central bank digital currencies or CBDC as they are also called.
The main point of the crypto/blockchain system is to decentralize the financial system, not give controlling authority to the very centralized entities, like the Federal Reserve, that it was created to avoid.
If the US Federal Reserve issues CBDC, will it follow the crypto/blockchain decentralization model? Is the Fed’s serious consideration to create a digital dollar or CBDC a further admission by the controllers of our monetary system that the value of the paper dollar is headed to zero and no amount of raising or lowering rates can curb the inevitable fall?
Bitcoin, the first crypto, was created to be a “trustless system.” In a “trustless system,” it doesn’t matter whether you are a female, black, white, brown, rich or poor because no person is trusted—not even the government. The trust lies only in the the math.
“The essence of bitcoin,” according to Andreas Antonopoulos, “is the ability to operate in a decentralized way without having to trust anyone. The essence of bitcoin is to be able to use software to authoritatively and independently verify everything yourself—without appeal to authority.”
Think of cryptocurrency as an excel spreadsheet or ledger of currency, Richard Heart expounds, that is maintained on the internet that you need your passcode to spend. And this currency inflates around 2% per year so that the integrity of the spreadsheet remains honest.
If the Federal Reserve creates a CBDC that is not aligned with the “trustless system,” who keeps the Feds honest?
Congressman Tom Emmer of Minnesota introduces a house bill that amends the Federal Reserve Act. Specifically the bill states that “a Federal reserve bank may not offer products or services directly to an individual, maintain an account on behalf of an individual, or issue a central bank digital currency directly to an individual.”
This bill prohibits the Federal Reserve from issuing a central bank digital currency (CBDC) directly to individuals. (This bill says the prohibition is to issuing CBDC to “individuals” so not sure if that prohibition applies to issuances to businesses.).
Congressman Emmer is concerned that a Fed issued CBDC to American citizens would put America on an authoritarian (dictatorship) path. Congressman Emmer says that America’s digital currency policy must ensure three main goals: (1)protects financial privacy, (2)maintains the dollar’s dominance, and (3)cultivates innovation.
Congressman Emmer specifically said, “CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely. Not only would this CBDC model centralize Americans’ financial information, leaving it vulnerable to attack, but it could also be used as a surveillance tool that Americans should never tolerate from their own government.”
The main fear of a Fed issued CBDC is that it would be the death of the paper dollar. Even more insidiously, it would allow the Federal Reserve to have access to every financial move of each American citizen that uses CBDC.
If a digital dollar (CBDC) is created, would it have a dollar for digital dollar equal exchange rate? Would I have to give all my personal identifying information to acquire these Fed-issued CBDC? Would the paper cash lose all value? Would you be able to still use the paper dollar to buy goods and services once the digital dollar is released? Would your paper dollar be like those who held gold coins when Nixon took the dollar off the gold standard? Would the CBDC be a total debasement of all the dollars in your bank account, piggy bank, or shoe box under the bed? Will the Fed circumvent this bill (if passed) by teaming up with a pre-existing business that is already issuing cryptocurrencies? Would the government provide free internet to us all? (Keep reading there is a reason for the last question.)
What happens to people who are unbanked or who only transact in paper cash?
Congresswoman Nikema Williams said in the hearing, “I’ve been unbanked; I’ve been that person trying to make it to pay day; I’ve been that person who needed a couple of hundred bucks but couldn’t get access to lending; I’ve been that person who had to rely on cash to get by.” She says that this is an equity issue saying that the FDIC reported that 13.8% of black individuals were unbanked while 2.5% of white individuals were unbanked.
Protecting financial inclusion as the digital economy expands is of critical importance to Congresswoman Williams. For some people, cash is the only option they have to buying goods and services. If a cash ban is put in place in America once a CBDC is created, this would hurt those people who are unbanked or deal only in cash or who don’t have access to the internet. Nearly 1 and 4 households still lack internet service.
To use CBDC as a currency would require you to have Internet. Without the internet, you could possibly have no access to your dollars or to get dollars, which in effect is like a taking of property and under the US Constitution, the government should not take property of a citizen without just compensation.
Can a US CBDC and other cryptocurrencies co-exist?
Fed Chair Jerome Powell said cryptos could co-exist with CBDC. But the question becomes which cryptocurrency would the masses support.
One line of thought is that central bank-issued cryptocurrencies would cause other cryptocurrencies to become useless. Fed Chair Powell said “you wouldn’t need stablecoins; you wouldn’t need cryptocurrencies, if you had a digital U.S. currency.” Is this underlying belief that a US CBDC would eliminate other cryptocurrencies why Fed Chair Powell is wanting to create a US CBDC?
Another line of thought, however, is that a central bank digital currency would actually have the opposite effect. Specifically, some argue that it wold cause a backlash over privacy concerns because the whole point of cryptocurrency is a decentralized model and a creation of a CBDC would cause more people to buy into decentralized cryptocurrencies (which in turn would further diminish the value of the dollar).
How can the Fed create a digital currency that doesn’t compete with other cryptocurrencies? Why create one if it doesn’t compete?
The government’s move front the paper game of printing money to the digital ledger/spreadsheet game of money is coming. We just don’t know how it will look yet, We will have to wait to read the Fed’s report on what a US CBDC could possibly look like.
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