Governments Want To Control Crypto So They Can Control Us
The push for central bank digital currencies is an assault on privacy and freedom.
Do you know who thinks that cryptocurrencies are the future? Central banks, that’s who, and they’re jumping on board the crypto bandwagon. But that doesn’t mean you should anticipate the folks at the Federal Reserve stepping aside to make way for Bitcoin adoption—far from it. Instead, central bankers want to displace grassroots cryptocurrencies with central bank digital currencies (CBDC) of their design that will not protect the privacy and let governments control private transactions.
“The Federal Reserve plans as early as this week to launch a review of the potential benefits and risks of issuing a U.S. digital currency, as central banks around the world experiment with the potential new form of money,” the Wall Street Journal reported October 4. “Unlike private cryptocurrencies like bitcoin, a Fed version would be issued by and backed by the U.S. central bank, a government entity, as are U.S. paper dollar bills and coins.”
In the race to adopt state-sponsored digital currencies, the United States is behind the curve. China recently banned the use of private cryptocurrencies to make room for the digital renminbi. Cambodia launched its digital currency, the Bakong, in 2020. Nigeria plans to introduce the eNaira this month. But America lags, and for excellent reason.
“Depending on its design, CBDC accounts could give the Federal Reserve access to a vast amount of information regarding the financial transactions and trading patterns of CBDC accountholders,” Christopher Waller, a member of the Board of Governors of the Federal Reserve System, commented (PDF) in August. “The introduction of a CBDC in China, for example, likely will allow the Chinese government to monitor the economic activity of its citizens more closely. Should the Federal Reserve create a CBDC for the same reason? I, for one, do not think so.”
It should surprise exactly nobody that China’s digital renminbi promises only “controllable anonymity” between private parties, and that the state retains the ability to monitor transactions.
“A fully anonymous central bank digital currency is not feasible,” Mu Changchun, head of the People’s Bank of China Digital Currency Research Institute, remarked earlier this year.
But full-time scrutiny by tax collectors and regulators isn’t the only downside to government-issued digital currencies. Many officials see a real advantage in controlling where and how much money is used—an ability they don’t have with private crypto or traditional cash.
“In case, we don’t know, for example, who is using a 100 dollar bill today, we don’t know who is using a 1,000 peso bill today,” Agustín Carstens, general manager of the Bank for International Settlement, which coordinates activity between central banks, commented last year. “A key difference in the CBDC is that central banks will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.”
“You could introduce programmability – what happens if one of the participants in a transaction puts a restriction on [future use of the money]?” observed Tom Mutton, a director at the Bank of England, last summer. “There could be some socially beneficial outcomes from that, preventing activity which is seen to be socially harmful in some way. But at the same time, it could be a restriction on people’s freedoms.”
Government power over digital currencies lends itself to both economic and social control. Centralized power over the money could encourage economic activity during periods of slow growth or discourage transactions opposed by whoever holds the reins of power.
“Imagine your digital balance shrinking slowly overtime to motivate rapid consumer spending,” warns Alexander William Salter, a professor of economics at Texas Tech University. “Or the Fed was blocking payments to politically disfavored businesses.”
It would be easy to introduce such controls in the form of continuations of existing restrictions on the use of government benefits. EBT cards already can’t be used at liquor stores, casinos, and adult entertainment establishments. Switching benefits over to digital currency with restrictions programmed in would be a logical step—but the technology would exist to expand similar controls to other users of government crypto. It’s difficult to imagine government officials resisting the temptation to program limits on the use of funds paid to government contractors, subsidy recipients, and an ever-growing list of digital currency users. That’s especially true when many CBDC advocates worldwide consider such power to be a significant attraction of pushing private cryptocurrencies aside in favor of state-controlled offerings.
There’s no doubt that governments dislike financial privacy and want a more remarkable ability to monitor where and how we use our money. As I write, President Joe Biden’s proposed tax plan “will give the IRS the resources it needs to keep up with the lawyers and accountants of the super-wealthy,” insists the president. “It would ask just for two pieces of information from the banks of these folks: the amounts that come into their bank accounts and what amounts go out of their bank accounts.”
Oh, is that all? So, we’re just talking about wealthy people (who aren’t entitled to financial privacy)?
“This proposal would create a comprehensive financial account information reporting regime,” specifies the proposal (PDF). “This requirement would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts, except accounts below a low de minimis gross flow threshold of $600 or fair market value of $600.”
I suspect that $600 is a definition of “super-wealthy” that’s new to most of us. Government officials who want to monitor cash flows to that level are bound to put programmable central bank digital currencies to wildly intrusive uses. It’s inconceivable that they would do anything else.
Crypto may well be the future of finance. But, if we want that future to be anything other than a dystopian hellscape of surveillance and control, we’ll need private and anonymous crypto that shields us from the prying eyes and manipulating hands of government officials who want power over everything we do.
Cross-posted from Reason