The Values of Money: Will Tyranny or Freedom Be in Your Digital Wallet?

Key Points

• Central bank digital currencies (CBDCs) are government-backed, digital bearer instruments that operate like cash and enjoy the full faith and credit of their issuing governments.
• Countries throughout the world are researching and experimenting with CBDCs, including China, which has already issued a CBDC using technological infrastructure that serves the authoritarian interests of the regime.
• A US CBDC should directly counter such an authoritarian model, preserving privacy and security, economic liberty, free speech, and autonomy for its users anywhere in the world. Doing so will give a US CBDC a distinct and decided advantage over CBDCs that incorporate government surveillance features.
• For American leadership to blossom, the United States must reconsider the current, identity-based financial-crime law enforcement model and shift to advanced digital forms of intelligent enforcement that are more consistent with US values and the Constitution.

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Introduction

Work on central bank digital currencies (CBDC) is underway around the world. The People’s Bank of China (PBOC) has already placed its digital currency, the eCNY, in the hands of over 260 million Chinese citizens. Among other design features, the eCNY will allow China and allied authoritarian governments to surveil and control the economic and financial transactions of billions of people.

CBDCs are digital versions of the banknotes that underlie current monetary systems. They are government-backed representations of value, so they enjoy the full faith and credit of their sovereign issuers, making them equal in value to the paper money they augment or replace. But they are digital. They operate a lot like cash but reside in digital wallets on smartphones and other devices. Unlike the electronic money we now send through banks and payment providers, this kind of money will allow for transactions that are both digital and hand-to-hand. Transferring CBDCs does not require a financial institution’s support. Though their use may look a lot like transfers of conventional money administered using a bank or online payment system, the direct and literal transfer of value that CBDCs make possible will be a sea change in the operation of money.

China’s eCNY is the first mile marker in the journey to the future of money. China’s early and strong lead in the deployment of CBDC raises the question of what form of digital money will be adopted by its economic competitors, including democratic societies. The opportunity exists to counter digital money like the eCNY with an alternative that protects personal privacy and proscribes the potential Orwellian dimensions of both sovereign and non-sovereign digital money. Seizing that opportunity would ensure that future digital currencies—both sovereign examples such as the US dollar or euro and non-sovereign digital currency such as stablecoins—would remain desired and aspirational currencies for generations to come.

That opportunity may be thwarted if the governments of the United States and other developed economies do not part with the window into citizens’ financial activity that is provided by current anti–money laundering procedures. The White House Office of Science and Technology Policy’s (OSTP) recent Technical Evaluation for a U.S. Central Bank Digital Currency System¹ shows that financial surveillance in the West is more like China’s than many would like to admit. Unwillingness to evolve beyond today’s constitutionally suspect financial surveillance system may undermine the opportunity to safeguard economic liberty and expand financial inclusion in the digital future of money.

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Notes

1. White House, Office of Science and Technology Policy, Technical Evaluation for a U.S. Central Bank Digital Currency System, September 2022, https://www.whitehouse.gov/wp-content/uploads/2022/09/09-2022-Technical-Evaluation-US-CBDC-System.pdf.