US Elections: Are CBCs Becoming ‘Highly Political’?

It wasn't until Facebook announced the Libra stablecoin in 2019 that anyone talked about central bank digital currencies (CBDCs).

And then most of the discussion was across disciplines – that is, between financial regulators, academics and payment specialists.

But last week's CBCC discussion kicked off in a big way when former US President Donald Trump said he would “never allow” a digital dollar if re-elected president. CBCC “will be dangerous to freedom, and I will stop coming to America,” Trump vowed on January 17 in New Hampshire.

Overnight, the CBCCs seem to have turned into a divisive, Republican-versus-Democrat affair.

Ron DeSantis, Florida's Republican governor and one-time Trump primary campaign rival, has already “pre-banned CBCs” in his state while the Democratic Biden administration was studying a government-issued digital dollar, though it took no steps toward implementation.

Still, wasn't this all a little surprising?

“Partisan Votes”

Tolani Iswar Prasad, senior professor of trade policy at Cornell University and author of The Future of Money, told Cointelegraph:

“In the highly partisan atmosphere in the United States, it's no surprise that the debate about the merits or lack thereof of the digital dollar has been laced with partisan rhetoric.”

Josh Lipsky, senior director of the Atlantic Council's Center for Geo-Economics, told Cointelegraph that CBCCs are becoming more politicized in general, with privacy among their top concerns, “but in America it seems ‘highly politicized' now.” “It's become more politicized in America than in other countries.”

“If we think about CBDCs as a technical finance issue, it's amazing,” said David Primo, a professor of political science and business administration at the University of Rochester.

“But it's not surprising that Trump and other politicians are framing this issue not as financial innovation, but as far away from government,” Primo told Cointelegraph. In a speech in New Hampshire, Trump described the central bank's digital currency as a “tyranny.”

CBCCs are only implemented in a few small economies such as the Bahamas, Jamaica and Nigeria, but are being tested in 130 countries, representing a total of 98% of global gross domestic product, according to the Atlantic Council.

“I don't think this is an issue that will appeal to a broad swath of voters, but I think it resonates with Americans who are concerned about the rapid technological change we're seeing in the crypto and AI spaces,” Primo added. I don't think it's a coincidence that Trump highlighted this issue in his speech in New Hampshire – a live free or dead state.

Strong debate can be a positive way to shed light on complex and important issues. But that truth may not apply here.

“This debate so far seems to be based largely on misconceptions and lies,” Prasad said.

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The consequences can be dire. Lipsky worries that the US will simply level the playing field and not even try to pilot a digital dollar. That could be a loss not only for the US but also for other countries.

CBCC opponents fear that “smart” money could be used by governments to spy on citizens' private transactions, a form of “Big Brotherism”. It is often pointed out that it is no coincidence that China was one of the first countries to adopt a government-issued digital currency.

“Some U.S. CBCCs concerned about the growth of such ‘tracking coins' believe that a ‘no' approach to search will protect Americans from such digital currency risks,” Jennifer Lassiter, director of digital currency at The Dollar Project, told Cointelegraph.

“Unfortunately, the U.S. ban on CBCC surveillance will not prevent or stop the international deployment of CDCs, including in countries that violate individual liberties.”

Americans and American multinationals will be harmed by them, for better or for worse, Lassiter continued, so it would be a huge mistake for the US to withdraw from CBC exploration and innovation.

But the points raised by Trump and others aren't necessarily pure heresy, others say.

While some recent fears may be overblown, “it's important to be clear that the last 50 years of financial policy has been a history of increasing financial surveillance,” said Nick Anthony, a policy analyst at the Center for Monetary and Financial Alternatives. The Cato Institute told Cointelegraph:

Unfortunately, the creation of a CBDC may be the cornerstone of this. [recent surveillance] History. The more the public understands how a CBC fits this story, and the more the public is part of this debate, the better.

Prasad, a senior fellow at the Brookings Institution who holds the New Century Chair in International Trade and Economics, supports public debate, but says: “Conspiracy theorists are getting ahead of themselves in terms of how far they are from America.” “Considering or preparing to issue digital dollars.”

Among major economies, “the US doesn't seem very eager to roll out the CBCC,” Prasad continued, “especially since many federal officials themselves see many reforms to the current US payments system as unnecessary.”

Where do cryptocurrencies fit into all this?

Since decentralized cryptocurrencies like Bitcoin (BTC) are outside the control of any central authority, some argue that CBDCs should have access to users until they are approved or rejected. Is this pure beauty on the part of crypto advocates?

“There is an inverse relationship between cryptocurrencies and CBDCs because governments have introduced CBDCs in response to the rise of cryptocurrency,” Anthony said. . “This strategy is even considered in the United States. So as long as the creation of CBCC stops, cryptocurrencies will have a better future.”

Others, however, see space for many types of digital assets. Cryptocurrencies, stablecoins and CBCCs are not isolated assets, each competing to be the sole means of payment, Lassiter said, but rather “champions” in the global financial ecosystem, each with distinct uses.

Along these lines, “I see crypto primarily as a new asset class, where there are now ETFs. [exchange-traded funds] They are available to invest. CBCCs, on the other hand, are digital currency cash,” Jonas Gross, chairman of the Digital Euro Association and chief operating officer at crypto-pays firm Etonec, told Cointelegraph.

“Even now, the political fight against CBCCs can make people think about our current financial system, which can bring more people into the crypto space.”

The Atlantic Council's Lipsky cautioned that these are still early days for digital assets and the relationship between crypto and CBDCs is unclear. The two may be positively correlated in terms of adoption, for example, when one goes up, so does the other.

Indeed, something similar has been found among early adopters of CBDCs, such as Jamaica, Lipsky added. As those countries have developed their CBDCs, they have found that cryptocurrencies, including stablecoins, have gained a following as “signals that digital assets are safe.”

Innovations in a digital form of payment will “increase choice and create accountability” and increase trust among many people that digital money is “private, safe and trusted,” Lassiter added.

Lipsky also suggested that many of the privacy concerns people face with the CBCC can be solved with new technologies and smarter regulations. Cryptographic tools such as zero-knowledge proofs, which verify personal information without revealing it, can provide anonymity in many situations, and cryptographic techniques can also be used to design CBDCs that offer cash-like privacy up to certain thresholds—for example, $10,000.

This is not unlike the system in the US, which has reduced reporting requirements for bank transactions under $10,000.

Prasad, for his part, has little chance of crypto replacing government-issued money: “Decentralized cryptocurrencies like Bitcoin, which allow individuals and businesses to be independent of central bank money or traditional financial institutions, are still a miracle.”

Moreover, the types of cryptocurrencies that work well in the role of currency — like stablecoins — are themselves backed by fiat currencies, he said.

Only an American phenomenon?

Immediately, he said, “The most surprising thing is that President Biden will leave CBDCs out of the campaign or take an official position before November. [presidential elections]” said Anthony. “Although he [Biden] While the government has previously pushed for drilling into CBDCs, the administration has remained silent throughout the campaign.

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Elsewhere, the European Union is holding parliamentary elections in June. “I think so [ CBDCs] It will also be a subject for the EU elections,” Gross said. However, we have not yet seen such strong political statements compared to America.

“CBDCs face an uphill battle, but I'd be surprised if pilot programs aren't tried in some countries in the next decade,” said political scientist Primo.

As for the U.S., despite its fit and start, it is “uniquely positioned to influence the development of global standards for digital currency networks, including CBCs,” Lassiter said. These standards, contrary to some claims, “can certainly protect democratic values ​​such as freedom of speech and the right to privacy.”