The reactionary political theater of CBDC bans

Florida has essentially banned the use of central bank digital currencies (CBDCs) in the state, and its regional neighbor, North Carolina, as well as several other US states, look set to follow suit soon. This is a major legal advance in what has largely been a rhetorical battle: The US government is, as it stands, “investigating” CBDCs, but it remains far from, if ever, actually implementing it broadly misunderstood the technology.

As the 2024 election cycle heats up, CBDCs — a broad term that covers a variety of ways to “digitize” fiat currencies that won’t necessarily use blockchain or see use by average citizens — have become a flashpoint. Political critics, mostly but not exclusively Republicans, have argued that a “digital dollar” would be a financial privacy nightmare, a tool that empowers the state while exacerbating existing financial inclusion problems.

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Over 100 countries are researching CBDCs, but only two – the Bahamian sand dollar and the Bank of Jamaica’s JAM-DEX – have deployed. There are several studies quite far along, including a two-year project by the European Union, a multinational initiative in the Middle East called Project Aber and, perhaps most worryingly for American Poles, China’s “digital yuan”, which debuted to the world during the last summer Olympics, among dozens of other ongoing proof-of-concepts and pilot programs.

What all that research has revealed is…complicated. There are legitimate risks associated with CBDCs, and theoretical consequences that could reshape the financial sector as we know it. A “retail” CBDC, for example, essentially a checking account with the Federal Reserve that any US citizen would have the right to use, would compete against private banks and credit unions, numerous studies have found.

Would it really be that bad? At least for my part, I’m a proud supporter of broad, universal programs that give people access to things—whether it’s governments setting aside land for the “common good” or systems like Bitcoin and Ethereum that do something similar for finance. More to the point, CBDCs will be large systems where the full spectrum of outcomes is not currently understood.

That hasn’t stopped people from saying definitively that a theoretical CBDC’s risks outweigh the benefits. Circle, the stablecoin issuer, has come out strongly against them. So has Florida Governor Ron DeSantis, a possible Republican presidential candidate, who will soon have the chance to pass the bill he proposed to Florida lawmakers banning CBDCs in the state.

Although a statement from Circle is very much worth considering – the company has as much a financial incentive to oppose CBDCs (which could compete with the USDC token) as well as a reason to rally behind them as a potential technology provider for global CBDC development – the political theater from actors like DeSantis is truly deplorable.

In March, the Biden administration announced its intention to “assess the benefits and risks” of central bank digital currencies, joining dozens of other initiatives around the world. America being America, and DeSantis being the opportunistic politician that he is, the Florida governor almost immediately proposed a law to “ban” CBDCs in the state. A number of similar initiatives soon followed (including a media event by Texas Republican US Senator Ted Cruz, being the opportunistic politician that he is).

And this being America, where the political process shuts down anything useful but speeds up the most dysfunctional laws, these state legislative bans on CBDCs are going to happen. Many in crypto will see this as a victory, having convinced themselves that all state art is the work of the Devil. But I urge humility and ask for patience, not only because the verdict is not out on CBDCs, but because the laws being proposed and introduced may end up doing more damage.

North Carolina’s representatives are going to block the state from participating in potential CBDC experiments. So when did research become a bad thing? Florida literally redefined what “money” is to exclude CBDCs. While the Bitcoin Policy Institute has praised DeSantis’ action in particular, it also published a report saying that all this anti-CBDC fervor could end up hindering the industry’s growth by introducing poorly written regulations or causing politicians to reject pro-crypto reforms.

This is to say nothing of the latent Sinophobia in many CBDC critiques, which often say that a digital dollar or digital euro will be used as a tyrant tool because CBDCs have more or less become synonymous with the digital yuan, a theme my colleague Emily Parker explored in a recent article. Or the idea that CBDCs can prevent the kind of “financial censorship/replatforming” that critics predict, precisely because a CBDC can be subject to constitutional protections that banks don’t have to follow.

Finally, CBDC may not be advisable in the United States or elsewhere. But it is something countries should decide on after considering the evidence. The only thing worse than political theater is being stuck as a character in someone else’s dumb-ass political play.