The Fed released a paper outlining pros and cons of a “digital dollar”
federalreserve.gov
federalreserve.gov
U.S. is considering a radical rethinking of the dollar for today's digital world - https://news.ycombinator.com/item?id=30239803 - Feb 2022 (101 comments)
A CBDC backed by a proof-of-work scheme is unforgable, meaning said currency could be transferred between multiple banks (even potentially abroad) without having to worry about whether said bank obeyed all the regulations correctly or not.
A central bank digital dollar would be IOUs from the central bank. It's closer to cash.
However, it puts the central bank being the only bank that handles the clearance/settlement. So it has higher political risk for holders. For example, you can store your dollar bills into a bank which does not follow the order from US government. But if you have CBDC, the federal reserve can simply freeze your balance.
With digital cash it might be more difficult, potentially intrusive or costly to convert to physical assets (look at crypto). If I take $20 out of my bank account and buy donuts, it's going to be very hard to the government to trace that. That will not be the case for digital cash. They will know the exact wallet that came from.
I also believe the need for the Fed for a CBDC is forced onto them because of the inevitability of a negative interest rate on savings accounts (which carries negative consequences). Indirectly, CBDC solves that for them. This person explains it practically: youtu.be/UP0e9MGjyD4
The C in CBDC is Central. The government wants this centralized not decentralized. They will be able to create any amount of CBDC currency.
The government will almost certainly push, along with this type of CBDC, for them to have far greater and more immediate control over your finances. In other words, any one of many government officials will be able to freeze your accounts (or drain them) at the push of a button. Hmm... I think that one of those three people did something bad - BAM - all three CBDC accounts are drained and frozen. Too bad, due to seizure laws, you can't ever get that back.
All of the advantages of having a physical note or a $ in a bank account disappear with this system. The government will control the ledger and everything that happens to it. There won't be money - just entries in the government's ledger. You won't be able to walk around with cash or even purchase an ice cream cone for your daughter without the government knowing.
That's in the best world. Just wait until the CBDC gets hacked like BTC or ETH. I doubt the government will return your govcoins.
PS. The document mentions "key stakeholders" in the CBDC. They aren't talking about people. You and I are not key stakeholders in this endeavor.
Off the top of my head, here are some possible concerns and avenues for abuse.
1) Today, the government needs at least the pretense of a warrant or at least legislation to allow them to legally snoop into your financial affairs within a bank. Spying on you would probably be a lot easier for them on some kind of central digital currency that they'd manage. Want to buy a 12 pack of giant buttplugs or a Quran? Uncle Sam is going to know about it in our brave new centralized currency world.
2) Cancel culture and removing classes of people from the economy for wrongthink views, or even just actions that their politicians take on their behalf is already a thing. It's not hard to see a future authoritarian government making financial life for their political opponents hell.
3) Programmable centralized money allows central bankers to have unprecedented control to impose policy that would have been close to impossible to implement before. Keynesian thinkers for example view the idea of money flowing through the economy quickly as one of the big avenues to prosperity. It's not hard to see them clamoring for effectively a tax on money that sits in your wallet too long without being spent to promote consumption, or any number of experiments now that the tool exists to make it possible.
You talking about "the government" as a unified entity seems odd to me here. The various bank regulators (FDIC, OCC, and yes, that same Federal Reserve) already have access to huge data flows. If they are already misusing it, it doesn't sound like this would be worse. And if they aren't, then I'm not seeing why that lack of misuse would change.
1) Even assuming they get all bank data (which can be assumed, but is uncertain) they don't get access to physical cash data, which might also be phased out in the event of a national digital currency.
2) Nothing about your comment addresses my concern about government power.
I think concern about government power is valid and important. Which is why I think it's vital to save talking about it where there's actually a material difference in government power. I don't think it is here, and you haven't given any reason why it would be.
>> Today, the dollar is widely used across the globe because of the depth and liquidity of U.S. financial markets, the size and openness of the U.S. economy, and international trust in U.S. institutions and rule of law. It is important, however, to consider the implications of a potential future state in which many foreign countries and currency unions may have introduced CBDCs. Some have suggested that, if these new CBDCs were more attractive than existing forms of the U.S. dollar, global use of the dollar could decrease—and a U.S. CBDC might help preserve the international role of the dollar.
I personally support the digital dollar but this paragraph stuck out to me:
>Some have suggested that a CBDC could reduce common barriers to financial inclusion and could lower transaction costs, which could be particularly helpful for lower-income households.
First, I have no idea who the "some" are that they are referring to. There's nothing more inclusive than a piece of paper that you can hold, regardless of socioeconomic status, condition, or location. There's no doubt that a digital dollar would do very little to be inclusive of vulnerable populations, especially if you need hardware to spend it.
How is a 100-dollar bill going to help you purchase goods on the internet?
This is particularly significant for low-income rural communities where, if all you have is dollar bills, you get to spend them at the one supermarket within reach, or if you have the money to afford a car, you can drive to the next town to have some actual choice. A currency that you can spend on-line is going to be more versatile in this scenario because of the larger breadth of accessible merchants and goods.
And this is bad. This means that one entity can take away everything from you with one click, so you can't even buy a pack of bubblegum, and on the other side, you can't even buy a dildo, without some entity tracking that somewhere.
Your cash transactions also aren't as anonymous as you think they are. You need to be essentially completely analogue, and even then, you probably are still being tracked somehow.
This is a thing that helps noone, except the people on top and wannabe dictators.
And again, f'ing crypto. This is the entire reason for crypto, to execute black market purchases (even if no one wants to make that the headline use of crypto). And if you think that your all cash purchases aren't being tracked, I have some bad news for you. If you walk into a store with a cell phone, you are being tracked, transaction and all. Facial recognition is going to be used the same way in those shitty countries (see China), so even going analog isn't going to save you.
There is no anonymity anymore unless you literally eschew all society and go live in the wilderness. Even then, it's not a guarantee.
Look at tracking for example... even in ancient history, someone could follow you around whereever you went, but that meant a dedicated person following you, and only you. For someone else, another dedicated person. And a wage, someone to replace them after their workday is done, etc. Now, with mobile phones, you can track 95% of the population just by doing a simple database query. There is a huge difference between those two levels of tracking.
I’m not sure what the other commenter is getting at, other than a weird attempt to shift the Overton window on financial privacy expectations.
The Hamilton Phase 1 summary doc has the following paragraph:
> The main functional difference between our two architectures is that one materializes an ordered history for all transactions, while the other does not. ... In the other architecture, we can audit the set of unspent funds to make sure they were created correctly. Storing the history of transactions implies the central transaction processor can reconstruct the transaction graph, which, in combination with other data sources, could reveal sensitive user information.
Who would have access to that reconstructed transaction graph/history, and under what contexts? How would that be controlled or enforced? NSA staff used their mass surveillance tools to spy on spouses and exes, after all. Even if you don't say anything in personal communication that the government should be concerned about, you can be legitimately creeped out by mass surveillance.
I FUCKING CARE. It isn't the point if the the government cares.
The government has no business knowing what I spend my money on, who I spend my time with, or what the hell I talk about.
As a resident of the great state of Texas, I must disagree. There are thousands, if not millions of assholes, that care if I can purchase a dildo. Possibly just in this state alone.
You probably mean "conspiracy theory." A "conspiracy" is what happens when a conspiracy theory is true.
And yeah, it looks like someone else wants to remove the "theory" part too :)
> building a hypothetical CBDC that would leverage existing technologies and systems: The Board's Technology Lab has been assessing the potential of a centralized CBDC design that leverages existing infrastructure and technology;
> exploring a CBDC design that would leverage newer technologies, such as blockchain: The Federal Reserve Bank of Boston is collaborating with the Massachusetts Institute of Technology's Digital Currency Initiative to explore the development of alternative platforms;
So, it could be centralized, it could be block-chain based. The potential range of what they could be talking about is so broad that it's hard to make anything specific of it.
But an interesting area of concern that they kind of skate by is how to safeguard against future innovations in cryptography. Will quantum computers be effective enough in 10 years to break a lot of public key cryptography? How long should people have an expectation that their financial activity remains private?
This paper just is adding a new shiny coat of paint to an already existing mechanism, just with new terms to make people think they're hip.
There are certainly cash only markets and the unbanked, the latter a much larger issue than the former. But isn't the existence of crypto (digital currency) supposed to be the grand solution to the former problem? Or does the promises of crypto fall down when actually forced to be used as a currency in a mainstream sense?
Today I'm basically all digital as far as money goes. I can't remember the last time I handled coins or bills. I don't feel like I have no control over my transactions or what I do with my money.
There are a lot of benefits to cash. I believe that a digital dollar that acts like paper cash is possible, but you need a lot of technologies to make that a reality (e.g. zero-knowledge crypto, and then mechanisms to peg digital asset to fiat). It doesn't quite exist yet today.
https://www.cbc.ca/news/politics/emergencies-act-banks-ottaw...
You don’t have money if it’s in the bank. The bank owes you money. Your credit card is a person liability that the bank will let you pay with their money, and they owe you less.
You have no control over your money.
Your financial transactions are already tracked by numerous parties. This is neither secret nor suspect. Without visibility over the transfers, distribution, and behaviors therein how would governments and financial institutions account for ethical violations?
From the Central Bank Digital Currency section under the Intermediated heading.
The Federal Reserve writes good papers. I wish all government entities were as thoughtful.
A world with physical currency has a builtin "privacy mode" in that you can conduct business just using notes and keep it in notes.
The US stopped printing notes larger than $100 in 1969. That $100 note in 1969 had the buying power of roughly $780 today due to inflation. I think it's well past due that the government print larger notes, allowing more economic freedom, but I understand why they don't. Even a $500 note doesn't bring us back to cash buying power parity with 1969.
- Abolish filing your taxes. All taxes can be calculated and payed automatically from your bank account, you don't even have to check. No more tax evasion!
- Manage the money supply more effectively. This is very complicated, you wouldn't understand, but it is very importing for achieving the Fed's mandate of price stability^H^H^H^H full employment^H^H^H^H 2% inflation^H^H^H^H 2% aggregate inflation^H^H^H^H climate change targets
- Track exact carbon footprint of every citizen, track calorie intake, sugar intake, meat consumption, condom use, and leverage this capability to assess and promote your physical and mental health
- Easily restrict specific individuals from certain purchases like guns, alcohol, sleeping pills, gasoline, lottery tickets, soft drinks, pornography, the book The Real Anthony Fauci, and other hate speech
- Turn off payments for terrorist, fugitives, people at risk of fleeing, illegal occupants of infrastructure, or for quarantined people beyond a five mile radius from their homes
What a scary question to ponder...
Something like that would have 0 effects on bezos or musk (where all the wealth in stocks). It’s about a tool to stimulate the economy by Keynesian logic. (Savings bad, spending good!)
In my small town there's a construction company that has been there for 50 years, and typically providing some 60 jobs to locals. The owner works day and night, carries all risk, is well connected in the community. Everybody loves him and people take no issue with him having the largest house in town or a more expensive car. This is reasonable wealth and well deserved, few would disagree.
That romantic idea of wealth does not apply to billionaires. The idea that you worked harder, took more risk or had a good idea breaks down morally in light of such numbers. It is wealth typically accumulated by financial instruments, speculation, rent-seeking and underpaying armies of people.
It's a complex discussion, but the way I see it, globalization is most responsible for enabling it. Globalization allows in particular big business to fully leverage the race to the bottom in wages, fully leverage favorable deregulation and tax avoidance by cherry picking nations most favorable, and dodge responsibilities, for example by externalizing environmental costs.
They get all the upsides, the typical population of any country all the downsides, with no negotiation power.
Bezos doesn't literally have 100 whatever billion. He owns shares which give him certain rights, and a bunch of people have said "we think these things are worth about X".
If there is a fixed (or practically approximately fixed) amount of central bank money, then from a practical perspective you absolutely want to limit the amount of it anyone could have. If someone has it all... the payments system based on it will stop working. Which would be super annoying.
I'm unsure how the regulatory actions of counterfeiting and competing currency laws work, which is how I ask... would this have to be written into a separate law, to outlaw or regulate the current crypto market, or would it already be folder into the current legal structure when/if the USD became a "digital dollar" with a similar format?
After a quick glance, it is mentioned that this form of digital currency is made in an attempt to cut down on financing illegal operations, so there would be some sort of ID'd blockchain tied into this... I would assume. Simple enough, put your social in with the block chain. Not a huge amount of memory more, I guess. My understanding of the block chain isn't extensive. I can only assume this is a backdoor route to exterminate uncontrolled currencies, which would make the above make sense... or are those just "traded goods" at this point, like baseball cards, or Beanie Babies? Or can those be, practically, made illegal?
Interesting choice of words for a monetary instrument which can be arbitrarily inflated or seized by third parties.
And this doesn’t even touch on the political risk inherent to “national” monies.
The first one is that the CBDC is a (crypto) currency to promote or maintain the dominance of the dollar in the world, as they openly state in the paper itself. This in itself is not unexpected but violates the idea of most cryptocurrencies, they are internet money, detached from national currencies, national interests or national rules. Only in the exchange back to fiat money do local interests play a role. So this is more like a stablecoin, with better backing.
The paper self-congratulates current central bank money as the safest money in the world, which I'd say is not entirely false, but at the very least I would expect monetary expansion (inflation) to be deeply discussed, but it isn't.
It mentions the current private cryptocurrencies and their many downsides, without listing upsides. Suspicious and biased. I don't care if you're pro or anti crypto, but its assessment cannot be this simplistic or binary.
Another item that comes top of mind is anti-seizure legislation. Recent events as seen in Canada (using an emergency law to seize assets) and the Russia thing where reserves are simply frozen are raising some questions about the safety of digital money. If any emotional politician can just push a button and take your assets, people will feel unsafe. The authority question goes unanswered in the paper.
The paper correctly establishes that privacy is critical but then also goes on to say that everything needs to be reported. A contradiction, so we'll find a "balance". Elaborate on this balance, because there is none. Every single transaction ever will be on record.
Not a word on the dangers of cryptocurrencies being programmable. Under the pressure of ever-changing politics, these could make possible restrictions on money currently barely possible. For example, they can put an expiration on your money, forcing you to spend it. Or, block the buying of particular products directly from your wallet. It's a potential huge jump in authority, but it's barely mentioned.
It dances around a lot of hot and inconvenient issues.
Cash as a technology is, like all other uses of paper, being replaced by digital solutions. And like all other paper replacements, this is leading to a significant shift in power and ownership. In this case, we are well on the way to have privatized a very significant piece of infrastructure, the payment system.
Since mandating the use of cash is unlikely to work (much less be popular), if the central bank wants to maintain any form of relevant control over this infrastructure, it absolutely has to launch an alternative to paper that lives up to the expectations of modern users. This is not a matter of being able to do new things as much as it as a matter of maintaining the position that they previously had.
A CBDC is a completely natural and necessary development for any democratic society in the 21st century. The alternative is the complete takeover of private actors.
There will be far less democracy if we ceed control of the money supply to politicians.
Any legal constraints on this (human rights and such) can also be applied to a CBDC.