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

The Federal Reserve has been going full steam ahead on the digital dollar freight train for years.

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.