Conservative lawmaker calls on central banks to 'China'

Conservative lawmaker calls on central banks to 'China'

That's how Republican lawmaker Tom Emmer described central bank digital currencies - digital money issued by central banks - in a hearing earlier this month, referring to the Chinese Communist Party.

The comment from the majority whip in the House of Representatives, who is pushing a bill that limits the power of the Federal Reserve to issue a digital dollar, highlights the latest battleground in the culture wars.

On Wednesday, the House Financial Services Committee voted on Emmer's bill and passed it to the full House. That's a big step toward the draft becoming law.

Neither Republicans nor left-wing privacy advocates fear that CBDCs represent the threat of unprecedented citizen control.

But among cries of protest from politicians and privacy advocates, the momentum behind CBDCs as payments and transactions move ever more online make them inevitable, said experts.

Although only a few countries have launched digital versions of their currencies, some130 countries are still working on their own CBDCs (see graph below). That adds urgency to this, he said.

The former head of Sweden's e-krona project, Mithra Sundberg, told DL News in February.

Central banks and governments were concerned about the prospect of private mammoths launching their own digital money, which would jeopardize their ability to steer fiscal policy. The European Central Bank's president, Fabio Panetta, raised a similar argument this summer when PayPal announced its new stablecoin.

Covid-19 served as a second accelerator. The pandemic ushered in more payments online, intricately linking the idea of CBDCs to lockdowns and vaccines.

Those statements are 'just fearmongering', said R3, a blockchain technology business that has partnered with a dozen CBDC projects, the CEO of R3, said on DL News.

But crypto experts say it's not just tinfoil hats that fear CBDCs - there are legitimate reasons to worry.

The CBDCs are not only transparent in their financial affairs but also allow governments to control their access to their own money and what they do with it.

It doesn't help that China, whose social credit system is a byword for dystopian government surveillance in the west, is piloting a digital yuan.

Shea is firmly in that camp. While banknotes are anonymous, digital currencies willinevitably come with identification and verification layers, he said.

Banks aim to prevent financial crime, but it's inferior to the privacy afforded by cold, hard cash.

Third, governments can easily apply smart contracts to CBDCs, giving them the ability to program money and give policymakers absolute control over the money supply, Shea said.

A government may choose to overstep the bounds of what citizens of democratic nations consider acceptable.

It may, for example, want to implement a health drive and bar certain people from spending more than a certain amount per month on tobacco, booze or junk food, and set those limits in the smart contracts.

Shea said she was confident she would not be the only candidate to be fired.

Central banks have rejected those concerns. In a statement on Thursday, William Lovell, head of future technology at the Bank of England, said the proposed digital pound would not be a tool for spying.

But CBDCs could get even more sinister: governments could cut off access of 'undesirable' individuals to their own money, she said.

Governments and private commercial banks do this already, privacy advocates say, often citing the Canadian government's blocking the bank accounts of the so-called of truckers protesting a coronavirus vaccine mandate, and Coutt's closure of accounts in the name of British far-right politician Nigel Farage.

The banking regulator has said this week that it found no evidence of systemic unbanking in the UK in an investigation launched in the wake of the Farage claims.

The devil is in the design.

For many, CBDCs simply represent the natural evolution of payments as countries become increasingly cashless, allowing them to bring the unbanked into financial systems - a big draw for developing nations - and streamline services like welfare payments.

Jannah Patchay, the policy leader at the Digital Pound Foundation, which is pushing for a so-called Britcoin, told DL News that much of the CBDC panic is based on misinformation.

She advocates for a CBDC design that respects and preserves privacy to at least the same extent as it is preserved in the existing accounts and payment systems, Patchay said.

Privacy can be baked into the design of a CBDC through policy and the technology that underpins it, she said.

Patchay, 61, said it would be up to the government to determine what type of policy the company would take.

For example, the Bank of England's mooted CBDC design, for example, has third parties providing the wallet or accounts to consumers, and not allowing the government to access the transaction data.

While the BoE would provide currency and central infrastructure, consumers would not interact with the central bank, but with wallets provided by private companies.

This may be a lot of noise given that CBDCs haven't gained much traction yet. Although the Bank of International Settlements estimates that 93% of its member central banks work on these projects, adoption of living CBDCs has been sluggish.

The UK and the EU's CBDC projects are in the process of being finalized.

The Fed has said it won't move forward without clear direction from Congress and supporting legislation in the US. But Republicans are not in favor - 60 of Emmer's colleagues have signed on to his bill.