Ron DeSantis wants to ban CBDCs. Is it even possible?
Florida Governor Ron DeSantis speaks during a book tour in Des Moines, Iowa. Rachel Mummey—The Washington Post/Getty Images
Florida Governor Ron DeSantis on Monday announced legislation banning the use of central bank digital currencies, or CBDCs, in his state.
“The Biden administration’s effort to inject a centralized bank digital currency is about surveillance and control,” he said in a statement, arguing that it “will stifle innovation and promote state-sanctioned surveillance.”
Neither Congress nor the president has ordered the creation of a digital dollar, and there is little precedent for a state’s rejection of a hypothetical form of legal tender.
Why did DeSantis, who may compete against Donald Trump in the race to become the next Republican presidential nominee, wade into the controversial fray of central government-backed digital currencies? And if the Federal Reserve were to mint digital dollars, would his proposed legislation have any teeth?
The Biden administration’s creation of a central bank digital currency is about one thing – control.
I urge the Legislature to ban the use of a so-called CBDC in Florida, protecting Floridians from government surveillance and control of their personal finances. pic.twitter.com/ob1E90R5Gn
— Ron DeSantis (@GovRonDeSantis) March 21, 2023
Constitutionally illegitimate
The Florida governor’s proposed legislation is most likely constitutionally illegitimate, according to four CBDC experts.
Richard Epstein, a law professor at New York University who has written about the implications of government use of digital currencies, cites the legal doctrine of “preemption,” or the idea that federal law supersedes state or local law when they conflict. Fortune that Florida cannot simply opt out of a federal mandate.
“Monetary policy in the United States requires a single currency,” he said in an interview. “Constitutional law was enacted pursuant to the supreme law of the land, notwithstanding any state law to the contrary.”
Eswar Prasad, a professor of trade policy at Cornell University who wrote The future of money, which covers the rise of cryptocurrencies and CBDCs, was less firm in its belief of the bill’s illegality. He said there are gray areas, including the state’s legal discretion to control payment systems. However, he remained skeptical.
“It seems a little ridiculous for a state government to take precedence over the Federal Reserve in determining the form of the national currency,” he said Fortune.
Are DeSantis’ concerns valid?
The Florida governor’s concerns about CBDCs are not entirely misplaced, according to Jiaying Jiang, an assistant law professor at the University of Florida who researches cryptocurrency regulation.
“There are a lot of privacy concerns,” she said Fortune. Just as with Bitcoin and other cryptocurrencies with public ledgers, a database of digital dollars, where the government could potentially monitor a citizen’s transactions, could lead to privacy violations.
However, she added, DeSantis’ claim that the CBDC will threaten community banks and smaller financial institutions is misinformed. Most countries exploring the implementation of a state-backed digital currency will likely issue it to banks, which will then distribute the tokens to the public.
“Financial intermediaries, they deal with customers every single day,” Jiang said Fortune. “They have the infrastructure. They have the technology.”
The movement to establish a digital central bank currency is an attempt to monitor and control Americans’ finances. It would violate privacy, limit consumer choice and undermine the competitiveness of the market.
CBDC has no place in FL and we are proud to lead the fight against it. pic.twitter.com/7DTOkVAhua
— Ron DeSantis (@GovRonDeSantis) March 21, 2023
Why ban something that doesn’t exist?
While the White House is rumored to be pushing to create a digital dollar and recently released a framework to guide the “responsible development of digital assets,” the executive branch does not have the authority to unilaterally declare a new legal tender.
“When we think about digital money, that authority rests with Congress,” said Jonathan Dharmapalan, founder and CEO of eCurrency, which builds technology for central banks to issue digital currency. Fortune.
Moreover, Prasad, the Cornell professor, said DeSantis’ proclamations about the current administration’s support for CBDCs are exaggerated.
“I don’t think the Biden administration has taken a strong position on this other than to say this is an issue that the Fed should look into,” he said Fortune“because the reality is that digital payments are becoming the norm.”
“This,” concluded Prasad, “is largely a political gesture with limited substantive meaning.”
