The latest fad in monetary policy circles worldwide is CBDC or Central Bank Digital Currency, a government-created cryptocurrency exchanged on a blockchain.
Many fear that it would give governments complete control over individuals by allowing them to track, and even block, individual transactions and to impose taxes at will.
In the United States, though, "money"has a constitutional basis so firm that, despite its name, a US government CBDC would not be "money"or even "currency."
It could exist as one payment system among many, but without violating the US Constitution it could not be forced on Americans as the sole final means of payment…
Article I, Section 8 gives Congress the power "to borrow Money on the credit of the United States"and "to coin Money, regulate the Value thereof, and of foreign Coin."
It also gives Congress the power "to provide for the Punishment of counterfeiting the Securities and CURRENT Coin of the United States"and "to raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years."
Article I, Section 9 stipulates that "No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Laws; a regular Statement and Account of the Receipts and Expenditures of all public Money shall be published from time to time."
Article I, Section 10 says that "no state shall... coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts."
The reasons for those policies are well understood and uncontroversial. Americans wanted their new nation to be a common currency area, so only the national government could have any monetary policy discretion.
The stickier question was always the extent of that discretion, particularly the federal government's ability to issue bills of credit.
I believe, after much study, that the Founders and Framers would have tolerated temporary periods of fiat money issuance during wartime or other major emergencies, but that they would not consider a permanent fiat system constitutional.
That position is obviously not the prevailing one, but it is also not necessary to establish the fact that a CBDC is not an electronic form of fiat money or any other type of "currency"under the Constitution.
As shown above, all three types of money specified in the Constitution – bills of credit, foreign gold and silver coins, and domestic gold and silver coins – were (and remain) physical bearer instruments.
In other words, they are "current"in the sense used in Section 8 above, meaning that mere possession provides sufficient proof of their ownership.
To tender current money is to turn over physical possession to another party in order to consummate a trade or pay a debt. Due to its physical nature and bearer-legal status, "money,"as used in the Constitution, can be used anonymously as a means of final payment.
In America's constitutional context, a CBDC is a payment system, a means of exchanging money over physical distance.
The Framers were aware of the payment systems provided by eighteenth century banks and merchants, but wisely made them no part of the Constitution. They did not conflate checks, bills of exchange, or other orders for the payment of money with money itself, and never made deposits or even banknotes a legal tender.
Can the Treasury or Federal Reserve proclaim that a CBDC is a new payment system that people may use instead of existing payment services? Yes, though it is not clear that a government CBDC will lower transaction costs enough to induce many to switch voluntarily.
Can the government say that CBDC is now money and confiscate Federal Reserve Notes and bank deposits like it confiscated gold during the New Deal? No, not lawfully.
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FAQs
In America's constitutional context, a CBDC is a payment system, a means of exchanging money over physical distance. The Framers were aware of the payment systems provided by eighteenth century banks and merchants, but wisely made them no part of the Constitution.
Does Congress have to approve the CBDC? ›
Furthermore, the legislation makes it clear that the Federal Reserve and the U.S. Treasury lack the authority to issue a CBDC without Congressional authorization.
Is the US going to a digital dollar? ›
U.S. President Joe Biden ordered officials to look into a digital dollar in 2022 but it has become a divisive political issue with Biden's Republican rival in this year's U.S. election race, Donald Trump, vowing not to allow it.
Will central bank digital currency replace cash? ›
Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.
Who controls the central bank digital currency? ›
A central bank controls a CBDC, whereas cryptocurrencies are almost always decentralized, meaning they can't be regulated by a single authority, such as a bank.
Who are the senators against CBDC? ›
WASHINGTON, D.C. – U.S. Sen. Ted Cruz (R-Texas), joined by Sens. Bill Hagerty (R-Tenn.), Rick Scott (R-Fla.), Ted Budd (R-N. C.), and Mike Braun (R-Ind.), today filed legislation to halt efforts by the Biden administration to issue a central bank digital currency (CBDC):
Are CBDCs constitutional? ›
In America's constitutional context, a CBDC is a payment system, a means of exchanging money over physical distance. The Framers were aware of the payment systems provided by eighteenth century banks and merchants, but wisely made them no part of the Constitution.
Should we get rid of cash? ›
For instance, using cash instead of credit or debit cards may help keep some people from overspending, because you can see how little is left in your wallet after every purchase. In short, getting rid of cash would impose hardships on society's most vulnerable people and could jeopardize our privacy.
Is cash being phased out? ›
This author says that's a false narrative. If it's been a long time since you pulled out actual dollars and coins to pay for something — here's a conversation for you. It might seem like cash is slowly becoming obsolete. But, Brett Scott says it's a false narrative that we're all pining for a cashless society.
Is paper money being phased out? ›
As people move toward more electronic or digital forms of payment, it might seem like paper money is on its way toward obsolescence. But experts say that cash will always be around.
The collapse of the dollar remains highly unlikely. Of the preconditions necessary to force a collapse, only the prospect of higher inflation appears reasonable. Foreign exporters such as China and Japan do not want a dollar collapse because the U.S. is too important a customer.
How close are we to a cashless society? ›
The US is moving toward cashless payments, with a substantial increase in the use of mobile wallet apps and contactless cards. A report from the Federal Reserve Bank of San Francisco found that payments made using cash accounted for just 18% of all US payments in 2022.
What's happening to the US dollar? ›
Introduction. Despite uncertain macro conditions, the dollar has continued to demonstrate strength — largely thanks to sticky inflation, a resilient U.S. economy and year-to-date highs in yields. Indeed, in a display of U.S. exceptionalism, the greenback has gained against just about every other major currency in 2024.
Is Bank of America going to digital currency? ›
Central bank digital currencies (CBDCs) are coming, but a digital dollar is unlikely in the near term, Bank of America (BAC) said in a report on Monday.
Is CBDC coming to America? ›
1 The United States doesn't yet have a CBDC as of 2024 but it's important to understand the concept with this option under discussion, as well as the benefits and risks attached and steps toward implementation.
Does China have a CBDC? ›
China's Central Bank Digital Currency (CBDC), the eCNY, is already involved in experiments with other central banks aiming to trade directly with each other's currencies instead of going through the US dollar. That in turn could reduce the potential reach of US sanctions and blunt Washington's financial power.
Did the House panel approve the bill to restrict CBDC? ›
House Republicans advanced legislation Wednesday that would restrict the Federal Reserve's ability to issue digital currency. The bill that House Financial Services approved in a 27-20 party-line vote would block the Fed from creating a central bank digital currency without congressional signoff.
Who has authority to change the US currency? ›
Article I, Section 8, Clause 5: [The Congress shall have Power . . . ] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; . . .
Who will control CBDC? ›
The U.S. CBDC will be backed and controlled by the Federal Reserve. The central bank will issue the digital currency and it will be accessible through digital wallets from intermediaries such as banks.
Does Congress have to approve monetary policy changes? ›
The Fed is independent in the sense that monetary policy and related decisions are made autonomously and are not subject to approval by the federal government. However, its governors are appointed by the President and must be confirmed by Congress.
