Tensions burst out between Rep. Rashida Talib (D-Mich.) and JPMorgan Chase CEO Jamie Dimon last week at a Capitol Hill hearing over whether the U.S. financial sector should continue funding profitable new oil and gas projects. The viral exchange – particularly Dimon's assertion that defunding fossil fuels would be the “road to hell for America” – rallied the usual suspects on both sides of the political aisle ... for a short while, before the next current thing came up.
But the question of government involvement (some would say coercion) in financial decisions won’t soon fade. In fact, the stakes are about to heighten as political interest in central bank digital currencies (CBDC) grows.
Paul H. Jossey is an adjunct fellow at the Competitive Enterprise Institute and founder of www.thecrowdfundinglawyers.com.
Without doubt, a CBDC could have sinister consequences for the U.S. should the government gain granular insight into Americans’ everyday transactions, potentially directing them to favored public policies.
So-called sustainable finance and its cousin Environmental, Social, Governance (ESG) investment standards aim to shape corporate decisions towards an elite consensus on issues like environmental policy and the primacy of racial and gender diversity on corporate boards. Proponents already force shareholder votes on their preferred issues, but they want more.
For example, President Biden’s Assistant Secretary of the Treasury for Financial Institutions, Graham Steele, wrote an academic article urging regulators to force drastic action on climate, including ultimately “imposing limitations on an institution’s activities, prohibiting activities, or forcing asset divestiture.” Gary Gensler, chair of the Securities and Exchange Commission (SEC), has overseen the implementation of sweeping new corporate climate disclosures. Treasury Secretary Janet Yellen describes climate change as an “existential threat” and urges “a rapid transition to a net-zero carbon economy.”
A CBDC would go beyond that kind of politicization of finance, imposing government directives on financial transactions to the individual level, to money itself. CBDCs are direct liabilities of a country’s central bank. Financial authorities tightly monitor and control the notes.
Unsurprisingly, the specter of such control appeals to authoritarians. China, for example, has been working on a CBDC since 2014. When fully implemented it will incorporate seamlessly with the regime’s existing social credit system.
Meanwhile, the global central banking authority, the Bank for International Settlements, is overseeing a number of CBDC pilots and running its own test of CBDCs’ international compatibility. The U.S. is also moving forward, if haltingly. While there are many forms a CBDC can take, it's likely all CBDC transactions will be monitored by some agency or another, with the evergreen justification of stopping money laundering and terrorism.
That anti-money laundering/combating terrorism financing (AML/CFT) regulations rarely stop wrongdoing won’t matter. Western officials will give the usual lip service about privacy, but it’s a mirage. As researcher Natalie Smolenski recently wrote for the Bitcoin Policy Institute, privacy in the CBDC context “does not mean privacy from the state. Rather, the state is presumed to be an essentially good and trustworthy overseer of markets at every scale, including at the level of individual transactions – and a desire for privacy from the state is implicitly equated to criminal intent.”
See also: If Money Is Speech, CBDCs Should Be Tools for Freedom | Opinion
A government with the power to record and monitor everyone’s transactions is powerful enough to impose its own version of morality on those transactions. Curtailing them, banning them, stopping them, erasing them, denying the ability for a company or individual to send or receive funds for disfavored people or causes. Once governments gain this control it will never be returned. There will always be some other existential threat to fight, some new clever money launderers, some other terrorists to stop; peaceful truckers denied a living by empirically dubious public health mandates are just the beginning.
Although the hour is late, it’s not too late to stop the CBDC train. In the U.S., at least, the Federal Reserve has publicly stated it will not move forward without congressional authorization. This provides a political opening. A technological opening may also arise as the slow pace of government may render CBDCs obsolete before they gain purchase. But no one should understate the threat CBDCs pose to individual sovereignty. They represent the final step toward the politicization of money.