Can someone explain to me how is this different from how money is in my bank account right now? Is the difference something like an int (just a pure number) vs something like an abstract data type like Money where you can have fields like source/destination/purpose/date issued/etc. for indexing and tracking purpose?
The implementation details don't really matter: it's what the government can do with a central digital currency that's different than today.
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.
What makes you think the Federal Reserve would just give all the data to, say, the FBI without a warrant?
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.
At this point, does anybody need to give any extra reason for why they can't trust this government or why it's a bad idea to give them power that can be abused so easily?
I don't think we'll agree, but I would respond with this in conclusion.
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.
There's no particular reason to think a cash phaseout is more likely one way or the other. CBDCs won't change the consumer experience.
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.
This seems a little crazy, but, you don't actually have money in a bank account.... You are owed money by a bank. Everyone is actually passing back and forth IOUs from banks when they pay for things digitally (or by check). It's one reason why there is a lot of complexity behind the scenes when you pay digitally. It's also the reason FDIC insurance exists. If you think about the fact that my "money" is an IOU from Chase and your "money" is an IOU from Bank of America - how do I send you "money"? It's a complicated dance with lots of different database entries.
A central bank digital dollar would be IOUs from the central bank. It's closer to cash.
The bank can bankrupt. So your money in bank has credit risk and liquidity risk. But central bank(federal reserve) can "print" dollar, so they will never bankrupt, hence your CBDC has no credit risk or liquidity risk.
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.
Are you talking about non-US banks that have dollar-denominated accounts? Because US banks are insured by the same federal government, making the credit/liquidity risk the same.
In a CBDC type system the Fed may or may not peg to an underlying asset. The paper does discuss the use of stablecoins as problematic. That likely means that the Federal Government doesn't want to peg your digital currency to a dollar or to anything physical. Without that pegging, they won't ever need to worry about a "run on the bank". Your CBDC will literally not be money, and any deposit you ever make for CBDC will have been a gift or maybe a purchase that won't be required to ever be reversed.
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.
My understanding: Like you mentioned the main difference is that digital cash is an abstract type. With our current cash we can very easily convert to/from an int currency to physical cash.
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
It would of course depend on the solution they go for, but if for example they used a cryptocurrency like Bitcoin, the difference would be that the 'int' in your account right now is forgable -- i.e. the bank can go in and just adjust it up/down as they see fit, with only regulations (i.e. messy human decisions) to stop them.
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.
I feel like this is the primary justification the US gov would have for issuing a CBDC. It's smack in the middle of the "potential benefits", so it's clearly the most important.
>> 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.
Not to be overly cynical, but this sounds like, "China's doing it so we need to do it too."
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.
> There's nothing more inclusive than a piece of paper that you can hold
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.
Wasn't this a conspiracy theory not that long ago?
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.
No one in the government cares that you are purchasing a dildo. No one at Visa or Mastercard either. There are other forms of currency as well, specifically ETH, BTC, and other cryptos that will continue to power black market purchases.
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.
You sure it doesn't? Look at for example the ashley madison hack... in some countries adultery is punishable by death. Buying gay porn means you're gay... death. Maybe not in "developed countries", maybe not today, not tomorrow, but those records stay... If you pay in cash, and the political situation changes, noone will remember when you were there and what you bought two years ago.
This is a thing that helps noone, except the people on top and wannabe dictators.
The existence of shitty countries doing shitty things to their citizens is not enough reason to not do reasonable things in developed countries.
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.
But it's not centralized. Yes, the gay porn store might have a VHS security cam, and the phone can locate you to the shopping center where the gay porn store is, and also walmart and home depot, but none of this is centralized, and none of those things can be easily done en masse.
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 completely agree with your line of reasoning - there is definitely a massive difference between cash transactions being potentially tracked by CCTV, and a centralized ledger…
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 government" may not care whether you're buying sex toys. But lots of people seem to care, and that gives that information some power to do harm.
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.
> No one in the government cares that you are purchasing a dildo.
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 have cash, you have IOUs, private contracts, all kinds of ways to pay which are difficult to track. I wouldn't worry too much if that's your concern.
> 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?
> The Federal Reserve Act does not authorize direct Federal Reserve accounts for
individuals, and such accounts would represent a significant expansion of the Federal Reserve’s
role in the financial system and the economy. Under an intermediated model, the private sector
would offer accounts or digital wallets to facilitate the management of CBDC holdings and pay-
ments.
From the Central Bank Digital Currency section under the Intermediated heading.
Not really, because Modern Monetary Theorists on the political left have been advocating for people to be given accounts at the Fed for universal basic income
I've seen lots of calls for the USPS to act as a retail bank but never for the Fed to do so, but maybe the idea would be for the Post Office to be the retail store front for Fed accounts?
If you think one step further, there will be _only_ the digital dollar. No bills anymore. This means total control about your transactions and what you are doing with your money, because it is digitally tracked.
Total control by whom? Most financial transactions occur between numerous financial institutions and wiring intermediaries in between. The finance network is far more decentralized than the web even after consideration for things like SWIFT.
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?
You made a jump that I'm have a hard time following.
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.
Folks who run small businesses like grocery stores and barber shops deal with cash all the time. Also there is a large class of unbanked folks in the US. Your experience doesn't generalize to everyone.
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.
Thank your good graces the state doesn’t freeze your account. This has only happened 1000s times before in history, most recently in Canada.
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.
Every financial institution that processes your banking activity is also making an allow/deny determination on every transaction. Sorry to break it to you.
Hardly. If a merchant accepts VISA, VISA isn't about to deny my transaction because the determination of suitability has been made before hand (assuming that I have the available credit).
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?
No, it's not. The majority if US "money" is IOUs from banks. A central bank issued digital dollar would be an IOU from the central bank.Legally it's a very different thing. Practically it will also be very different, at least behind the scenes. It means you could have $10 million in digital dollars and not have to worry about your bank going under. It also gives the federal reserve much more power. If your money is in digital dollars, they can stop the settlement. Right now they'd have to ask your bank to do it for them. Your bank has lawyers and mostly won't do illegal stuff even if asked by the government to do so.
The Federal Reserve writes good papers. I wish all government entities were as thoughtful.
Unless it comes with safeguards regarding anonymity and protection from seizure, I feel that this will give the government too much power and surveillance. What will prevent the government from holding individuals accountable for making transactions deemed immoral or dangerous? It seems all you have to do is characterize a movement as terrorism and you can seize assets at will.
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
That's sound awesome, but the bit about tax evasion would be hard to sell. Let's wait until we invent CBCD Pro, where your right to privacy is guaranteed, for a price.
I find it a very interesting question to ponder. It may not play well with the crowd here, but ask what sort of society allows an individual to accumulate tens of billions of dollars while others have none? Now, I'm not (yet) advocating that we eat the rich, but isn't something fundamentally wrong when so much money (and power) can be held by an individual? What does that mean for a well-functioning economy? Or politics? Can you truly have a democracy with such wealth discrepancy?
You're right that there's a point where somebody's wealth becomes unnatural or perverse. I think some people don't appreciate the difference between somebody rich and the ultra wealthy. They tend to be lumped together into one group, but they're not.
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.
You are confusing taxation with monetary policy. Given the context, this is more about stimulating spending/forcing investment into something other than “cash”.
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!)
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.
Given the current geopolitical events, I'm note sure to understand how any country would agree to jump into the use of this CBDC.
My understanding is that with this new tool, the fed will be able to know where is the money in real time. Tough this makes a lot of sense from th FED side ( solutions implemented addresses in 2008 failed mainly because money received from th central banks failed to be re-injected in the real economy).
Not sure to see a large enthousiasm from other countries to have this asset denominated in this USCBDC Being remove in one click....
So, if this goes through, would this make crypto-currencies competing currencies and therefore illegal?
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?
The paper conveniently dodges a few critical items of attention.
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.
Disagree. CBDC is a way of hijacking a democratic society to enforce rigid economic engineering. It is vastly asymmetric for the state, who can delete your life savings with a click, or deflate your wealth to better accommodate debt.
There will be far less democracy if we ceed control of the money supply to politicians.
I’d rather trust math, than a politician who claims to respect human rights. Do you know the only technology you can defend to protect human rights? Cryptography.
A central bank digital dollar is absolutely not needed for this. The population can use digital payments without the central bank needing a digital dollar. Like it does... now.
The payment system is infrastructure. Some would say it's the most important piece of infrastructure that we have. It is remarkable that we have allowed it to become privatized due to the progress of technology.
Why is it remarkable that it's private? Most infrastructure is private. Railroads, ports, many airports, many roads, gas pipelines, power lines (and power), water, trash collection, telco infrastructure and on and on and on.
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)