IN-DEPTH: Federal Reserve Considering Central Bank Digital Currency, but Few Understand Its Dangers

'It's absolutely the best tool for a surveillance state you can buy,' a lawmaker said

An illustration of digitized currency. Dem10/Getty Images

Most Americans haven’t heard of a central bank digital currency, and those who have don’t really understand what it is.

While the Federal Reserve considers implementing such a program in the United States, some are trying to warn Americans about its potentially devastating consequences.

A central bank digital currency (CBDC) “is generally defined as a digital liability of a central bank that is widely available to the general public,” according to the Fed.

“Like existing forms of money, a CBDC would enable the general public to make digital payments,” the Fed states. “As a liability of the Federal Reserve, however, a CBDC would be the safest digital asset available to the general public, with no associated credit or liquidity risk.”

Currently, the Federal Reserve says it “has made no decisions on whether to pursue or implement” a CBDC. But the Board of Governors “have been exploring the potential benefits and risks of CBDCs from a variety of angles.”

On May 1, Kristalina Georgieva, managing director of the International Monetary Fund (IMF), suggested that it’s only a matter of time before CBDCs become standard around the world, even in the United States.

“The future has arrived,” Ms. Georgieva said at the Milken Institute’s 2023 Global Conference. “Even in the U.S., where [CBDCs were] for quite some time a topic of not great interest, now there is an engagement.”

CBDCs can allow government agencies and private-sector players to program the currency to allow targeted policy functions, IMF Deputy Managing Director Bo Li said in October 2022. He said that money can be precisely targeted for what people can own and what they can use the money to buy, such as food.

The Risks

A significant danger posed by CBDCs is the loss of privacy, a violation of every American’s constitutional rights.

The Fourth Amendment states that “the right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

Idaho state Rep. Ted Hill, a Republican, predicts that CBDCs “would be the back door to violating the Second Amendment.”

Idaho Republican state Rep. Ted Hill. Courtesy of Ted Hill

“They'll know just how many rounds of ammunition you purchased. They will track everything you do,” Mr. Hill told The Epoch Times. “It’s absolutely the best tool for a surveillance state you can buy.

“We’re trying to push back on this for the same reason we pushed back on the merchant codes,” he said, referring to the practice of credit card companies tracking firearm and ammunition purchases.

He called CBDCs “the epitome of a surveilled society,” and said that “it’s terrifying.”

A CBDC would also give the government unprecedented access to consumer financial data.

Frozen Assets

While freezing or confiscating someone’s cash assets ordinarily requires a court order, a CBDC could make the process easier and faster for governments.

This threat is valid.

“This type of control not only has the potential to allow the government to limit certain types of private spending or limit access to banking accounts, it could also threaten the Federal Reserve’s independence,” Federal Reserve Governor Michelle Bowman warned in April.

U.S. Rep. Tom Emmer (R-Minn.) agreed, saying at a Cato Institute panel discussion in March that a CBDC is the equivalent of “government-controlled, programmable money that can easily be weaponized into a surveillance tool.”

Masato Kanda, Japan’s vice minister of finance for international affairs, said in April that he believes the digital nature of a CBDC also makes it vulnerable to cyberattacks. Hackers—private or governmental, foreign or domestic—could target a central bank or individual accounts, and with a few keystrokes, might even have the power to cause widespread disruption to the global financial system.

The Department of the Treasury in Washington on Aug. 30, 2020. Andrew Kelly/Reuters

On March 9, 2022, President Joe Biden signed executive order 14067, outlining six priorities for establishing a national policy for digital assets and directing the Treasury secretary to “produce a report on the future of money and payment systems, to include implications for economic growth, financial growth and inclusion, national security, and the extent to which technological innovation may influence that future.”

In September 2022, the Department of the Treasury announced the release of that report (pdf), stating that “there are substantial opportunities to promote faster, cheaper, and more inclusive payments,” but that there’s “a need for further research and development on the technology to support a U.S. CBDC, which could take years.”

‘Tax Evasion and Terrorism’

Peter St. Onge, a research fellow in the Thomas A. Roe Institute for Economic Policy Studies and the Mark A. Kolokotrones Fellow in Economic Freedom at The Heritage Foundation, isn’t a fan of CBDCs.

He said he fears that “all of America’s dollars could become this plaything where the government could just shave off money from people they don’t like and give one hunk for the people who vote for them and another hunk for their donors.”

Peter St. Onge. Courtesy of The Heritage Foundation

Mr. St. Onge also warns that the government will give familiar reasons for claiming a CBDC is good for the people.

“Tax evasion and terrorism. Those are the classics,” he told The Epoch Times. “The Bank Secrecy Act was ’the tax evader.‘ The Patriot Act was ’the terrorists.’ Every time they want control over the American people and take our freedoms away, these are always the ones they trundle out, and we’re supposed to imagine that the government will constrain itself when instances of financial censorship would be front and center.”

Mr. St. Onge also cited the growing effort to pull the United States into a global world order and do away with the Constitution.

“The sick irony of it is that this global government we’re kowtowing to was built in part by a previous generation of Americans—the IMF, the World Bank, and the United Nations—and the goal at the time was that the U.S. would control the world.

“And, boy, did that backfire,” he said. “I would prefer we pull out of the whole mess. To heck with it. Evict them, and let them go hang out in Switzerland.”

But there’s hope.

“On the face of it, CBDC absolutely violates the Fourth Amendment,” said Mr. St. Onge, who believes that the effort will ultimately be struck down by the Supreme Court. “The trick here is there’s something from 1970 called the Bank Secrecy Act that more or less gives the government the unlimited ability to surveil your transactions.”

The difference between the Bank Secrecy Act (BSA) and a CBDC, he said, is that with the BSA, the government has the banks “do their dirty work.” Then they pass on any information deemed as “suspicious” to the government. Then, government regulators redefine and broaden the word “suspicious” to fit their needs.

A CBDC would eliminate the middleman.

‘Americans Oppose This’

Mr. St. Onge said that while he believes today’s BSA has expanded to a point where it, too, has become unconstitutional—“meaning banks should not be able to pass on information about your transactions to the government unless there’s an actual warrant”—he said that “CBDCs would expand government power even more dramatically because banks wouldn’t have to lift a finger. The information would automatically be sitting there at the government’s fingertips.”

“So in my opinion, it would absolutely be unconstitutional,” he said.

Mr. St. Onge also noted that a CBDC is “widely unpopular” among Americans.

A 2023 Cato Institute/YouGov survey (pdf) found that 72 percent of Americans are unfamiliar with CBDCs. Because of this, only 34 percent said that they oppose the idea. And only 17 percent expressed support.

However, when informed about the potential risks of a CBDC, opposition escalated.

If CBDCs gave the government the power to “freeze the digital bank accounts of political protestors,” 59 percent were opposed. If “the government would be able to see everything you purchase,” 65 percent were opposed.

If it meant that the government could control what people purchased and when, 74 percent opposed CBDCs.

Reuters contributed to this report.