Strange Bedfellows: Banks, Crypto Push Back Against US CBDC
Politico gets it half-right when they note that voices in TradFi and Defi don’t like the idea of the US creating a central bank digital coin (CBDC).
A US CBCD draws strong bipartisan support in Congress, and various agencies are studying what would be necessary for the Fed to move ahead in creating one. The Biden administration earlier this summer directed various government agencies to examine the question.
Attorney General Merrick Garland has until Sept. 5 to determine what, if any, new laws are necessary for the Fed to move forward with a digital dollar. In Congress, House Financial Services Chair Maxine Waters (D-Calif.) and Republican Rep. Patrick McHenry (N.C.) are expected to soon announce a bill that would order a study of a Fed currency as well as set new rules for stablecoins — privately issued digital tokens whose value is linked to the dollar.
A central bank digital currency, or CBDC, would mimic cash in many respects — allowing consumers to conduct transactions using digital wallets that would likely be maintained by banks or other financial intermediaries. Those services promise to offer speedier, cheaper and more secure services than what’s now available through commercial banks, fintechs or crypto.
The pushback from the odd couple coalition of banks & crypto advocates does indeed stem from a market perspective – both see a US government CBDC as a disruptor in their market.
Banks and credit union groups have flooded the Fed, Treasury and Commerce Departments with letters calling CBDCs risky, unnecessary or — depending on its design — a slow-moving torpedo that would drain deposits from commercial banks. Digital asset groups and stablecoin businesses are making similar arguments, claiming that a digital dollar would disrupt the development of blockchain-based payment systems that facilitate trades for popular cryptocurrencies.
A CBDC could “end up becoming the equivalent of the FAA flying planes and building jet engines as opposed to designating competition rules-based safe conduct in the skies,” said Dante Disparte, the chief strategy officer and head of global policy at Circle, the world’s second-largest stablecoin issuer.
It’s “a solution looking for a problem,” he added.
But from the crypto perspective, the pushback is also against bringing centralization to the core crypto space. Consider the very next paragraph.
That problem could be pressure from overseas. At least 25 countries have launched or piloted their own central bank digital currencies — a list that includes China, Russia and Saudi Arabia, according to the Atlantic Council. Roughly one-in-five Chinese citizens had downloaded a digital wallet linked to a pilot version of the digital yuan as of the end of last year.
Those three nations aren’t known for their commitment to human rights. You don’t want illiberal governments like that to have the ability to turn on and off a citizen’s access to their own money, based on whether they committed a badthink. And just in case you’re thinking it can’t happen here, here’s a reminder that the liberal government in Canada froze assets of the participants in the large and peaceful anti-Covid restriction protests in Ottawa last February.
Crypto enables people to opt out of the traditional finance and banking space. A US CBDC expands government control over its people exponentially, and dangerously.