JACK MCPHERRIN: Is the Federal Reserve lying about creating a central bank digital currency?

Opposition to a potential U.S. central bank digital currency (CBDC)—which represents the endgame for totalitarian control—has become increasingly strident in recent years. Much of the concern was galvanized by an executive order from the Biden administration in March 2022 that directed nearly every important department and agency in the U.S. government—in addition to “encouraging” the nominally independent Federal Reserve—to continue their efforts to create a Federal Reserve-backed CBDC.

Republican leaders ranging from former President Donald Trump, Vivek Ramaswamy, Sen. Ted Cruz (R-TX), House Majority Whip Tom Emmer (R-MN), and Florida Gov. Ron DeSantis, among many others, have all pushed back heavily against this growing threat.

In response to this clamor from conservative leaders as well as a growing number of Americans, Federal Reserve Chairman Jerome Powell was asked to testify before Congress on March 7 about the Fed’s intentions vis-à-vis a U.S. CBDC. 
href="https://www.youtube.com/watch?v=y3QYcSRXapA">In his testimony, Powell unequivocally stated, “We’re nowhere near recommending—or let alone adopting—a central bank digital currency in any form,” adding that “people don’t need to worry about it.”

“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 from the banking system. The last thing we would want with the Federal Reserve would be to have individual accounts for all Americans, or any Americans for that matter,” Powell added.

Simply put, Powell lied to Congress. The Federal Reserve is far beyond the “thinking about it” stage. And, it has been actively researching and testing a U.S. CBDC for years.

In September 2021, Powell stated that “We’re working proactively to evaluate whether to issue a CBDC, and, if so, in what form.” Shortly thereafter, in January 2022, the Fed issued a discussion paper that defines a CBDC as “a digital liability of the Federal Reserve that is widely available to the general public” and directly states that “The Federal Reserve is considering how a CBDC might fit into the U.S. money and payments landscape.”

Further, a collaboration between the Boston branch of the Fed and MIT’s Digital Currency Initiative—called Project Hamilton—produced a paper revealing the findings of “phase one” of their work on a potential U.S. CBDC in February 2022.

The executive summary of that paper states that “The Federal Reserve Bank of Boston (Boston Fed) and the Massachusetts Institute of Technology’s Digital Currency Initiative (MIT DCI) are collaborating on exploratory research known as Project Hamilton, a multiyear research project to explore the CBDC design space and gain a hands-on understanding of a CBDC’s technical challenges and opportunities.” Further, the project’s “primary goal was to design a core transaction processor that meets the robust speed, throughput, and fault tolerance requirements for a large retail payment system.”
Clearly, the Fed is the driving force behind U.S. CBDC research and testing.

Those pieces of evidence alone directly implicate Powell as having lied to Congress about the Fed’s activities surrounding the digital dollar. However, it gets worse.

A new Fed paper released on April 12, 2024 also contradicts Powell’s testimony. The paper, titled “Financial Stability Implications of CBDC,” essentially argues that a U.S. CBDC could increase financial instability by “increasing the financial sector’s vulnerability to destabilizing runs” and “weaken[ing] financial stability by reducing the ability of banks to extend credit during times of stress.”

At first blush, it seems as if this paper is actually arguing against a U.S. CBDC, despite the fact that the paper is framed around the inevitability of the digital dollar’s imposition. 

Naturally, however, the paper concludes by proposing a solution to these potentially pesky problems for financial stability—the Fed just needs to “program” the CBDC effectively.

At the very end of the paper, the authors argue that “A CBDC with programmable features may introduce ways to potentially overcome some of these hurdles. For example, the problem of time-inconsistency can be addressed by programming individual limits in CBDC together with costs embedded in the CBDC.”

As if this statement is not worrisome enough, the footnote accompanying it is far more terrifying. Footnote 57 states, “The literature has suggested additional features for CBDC programmability such as being eligible only for certain transactions in times of crisis, for example purchases of groceries, medical bills, and similar goods or services… this notion of programmability could be enabled within several layers of the CBDC architecture, such as the platform, coin/token, contract, and wallet level, all of which could be characterized by different trade-offs.” 

CBDC programmability is the precise reason why so many advocates of liberty are diametrically opposed to a U.S. CBDC. Programming the digital dollar would give the Fed unprecedented power to limit individual freedoms, eviscerate privacy protections, and pursue policy objectives at will.
Because CBDCs are digital and controllable by a centralized authority, they can be embedded with features that allow governments, banks, or other authorized institutions to monitor what people are purchasing with CBDCs, or prevent purchases from occurring altogether. The Fed could easily program its CBDC so that its users can only spend money on approved items at allotted times (as directly referenced in the Fed’s April 2024 discussion paper), which would allow it or other authorized entities to effectively control all of its users’ activities.

href="https://www.youtube.com/watch?v=9FM4Fu2ujDE">Consider the words of Bank of International Settlements General Manager Agustin Carstens, for instance: “We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000-peso bill today. The 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, and also we will have the technology to enforce that.” (Emphases mine.)
For instance, a CBDC could be programmed to make certain actions, products, or services costlier for certain groups, and punish or reward users for activities deemed “good” or “bad.” They could also be used to completely circumvent the legislative process and push policy objectives, such as by punishing individuals who have an outsized “carbon footprint” or restricting the purchase of firearms and ammunition.

Additionally, the Fed could use the digital dollar to conduct monetary policy and economic policy more generally. Former IMF official Eswar Prasad explains in an article for Bloomberg: “If we all had CBDC accounts instead of cash, in principle it might be possible to implement negative interest rates simply by shrinking CBDC accounts. It will become a lot easier to conduct helicopter drops of money.”

Ultimately, a CBDC could even simply be turned off for users that engage in “harmful” speech (read: speech dangerous to the ruling regime) or for simply donating to certain political candidates. The coercive capacity of a U.S. CBDC is virtually limitless.

But, of course, we “don’t need to worry about it,” in the words of Powell.

So, we have two problems. The first is that the Federal Reserve has been going full steam ahead on the digital dollar freight train for years, and is only accelerating their efforts, which will eradicate any vestiges of individual freedom and democratic institutions this country still has left. The second is that the chairman of the Federal Reserve is directly misleading and lying to Congress about the Fed’s work to impose a totalitarian nightmare.

Jack McPherrin ([email protected]) is research editor at The Heartland Institute.

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