Should We Fear the Replacement of Cash with Digital Currency (CBDC)?

Most Americans believe in the rule of law. They assume that most of the time our laws will be enforced as written and applied in a fair and judicial manner. I don’t mind if the police spy on me, as long as I get to spy on the police (through police body cameras). But what about eliminating cash and making all the details of my transactions available to the government through the introduction of a central bank digital currency (CBDC)?

A while back, economists at The Bank of England asked me to present my paper on “A New Digital Currency (CBDC) Monetary Policy Tool to Stop Inflation Without Causing a Recession” in their session at the American Economic Association annual meeting.  Lately a lot of people have expressed concern about the privacy issue associated with the creation of a central bank digital currency (CBDC) and how to keep the government from misusing the account information.  In my paper I noted that it would be easy to keep the transactions information separate from the account ownership information, connected only through alpha-numeric codes as done for the cryptocurrencies such as Bitcoin, Litecoin, Ethereum, et cetera. A judge could decide whether suspicious ( illegal ) transaction activity (drug dealing, money laundering, etc.) in a particular account was sufficient to warrant allowing government officials access to the account’s ownership information.

Most people think that a bank just loans out the money that people deposit in that bank. This is a complete misconception of how our banking system works. The bank does not loan out the money you deposit, but instead uses that money to loan out as much as ten times the amount of money you deposited. Where does your bank get all that money? It just creates it out of thin air. The banks creates a loan by creating an account for the person or business that is to receive that loan and then typing in the amount of the loan as the account balance. That is it. The bank creates that loan money out of thin air! Your deposit just provides your bank with the authorization under our fractional reserve banking system to create and loan out ten times as much as you have deposited.

It is important to know that at least 90 percent of currency in the United States is already digital and has been created by the private banking system under our fractional reserve banking system.  Most money is in checking accounts, savings accounts and credit cards, which the private banking system monitors.  The Federal Reserve Bank can adjust the amount of money in our economy on the margin to fight inflation (raise interest rates and reduce available money) or to stimulate the economy (lower interest rates and increase available money). But most of the money in our economy has been created by private banks.

Wells Fargo took advantage of people by giving them features or accounts they didn’t ask for and charging them for those features or accounts.  The law eventually caught up with Well Fargo.  Several of its leaders were forced to resign and the bank was heavily fined.  The rule of law must be adhered to to prevent private banks and government autocrats (mainly politicians) from violating our rights under the law.

Many young people don’t even bother carrying cash now that even vending machines accept credit card payments.  I was in NYC at a Times Square hotel to present my paper at the Eastern Economics Association meeting when I noticed a sign in the hotel lobby near the hotel restaurant that said: “We do not accept cash.”  I thought that this was just the hotel, but I went to a nearby Starbucks and saw the same sign: “We do not accept cash.”  Eliminating cash avoids wasting time making change and the occasional robbery. The bus is going nowhere and the passengers all have to wait patiently while the bus driver is busy with cash transactions. Why bother with it. Some newer vending machines don’t accept cash. Some of the older vending machines accept cash in theory but not in practice. Sending workers around to all the vending machines to add or remove cash is such a waste of time. Credit card transactions can be sent electronically to the vendor. Cash is (becoming) trash! Well, actually you may want to hold on to some of these strange pieces of paper and coins to show your grandchildren and great grandchildren. In reality, money is going digital one way or another whether we like it or not.

The fear of government access to our transaction information by replacing cash with a Federal Reserve issued digital currency is part of a broader concern about the potential use of government power to violate our privacy to control and manipulate people. Politicians clearly have an interest in rewarding their followers and undermining their opponents in order to ensure their re-election. But why would so-called government “bureaucrats” have any interest in manipulating people? What would be their motivation?

Many of my students were willing to forgo making the big bucks on Wall Street to instead take a job as public servants with an oath to abide by the rule of law and the Constitution.  They have worked for the IRS, the CIA, and many other key agencies in the government. They are all good people serving our country by following the rule of law and the Constitution of the United States.  If you believe in the rule of law, you will want to keep decisions about arresting and prosecuting people out of the hands of the politicians and only in the hands of dedicated public servants including police officers, judges and juries who are committed to the fair and impartial application of the rule of law.

Politicians like Donald J. Trump hate my former students and call them the “The Deep State” because they refuse to violate the law in favor of acting to promote Donald J. Trump.  Don’t hate the government and the public servants who have dedicated their lives to serving us. Just stop the politicians who want us to violate the rule of law and the Constitution. It is not the dedicated government public servants who have served America over the years who are motivated to use our information to take advantage of us, but rather it is the politicians who want to gain access to our private information in order to manipulate us for political gain.

Instead of disparaging “The Deep State“, we should be celebrating them and thanking them for following the law and the Constitution instead of following some politician who wants to violate the law to promote themselves.  The transition from cash to a digital currency that lacked adequate privacy protection could enable a rogue politician such as Donald Trump to identify and abuse his or her opponents and their followers. Strengthening “The Deep State” is the best way to keep any president from abusing his or her power. We should be honoring, not disparaging, our friends and neighbors in “The Deep State.”

One would think that conservatives would want to correct any deviations from the rule of law and the Constitution. If the Biden or previous administrations have used government power inappropriately, you would expect conservatives to propose ways to re-establish the rule of law under our Constitution. But the Trump supporters at The Heritage Foundation are proposing the opposite strategy in their Project 2025 plan entitled “Mandate for Leadership: A Conservative Promise.” The Project 2025 plan calls for Trump to dismantle any and all barriers to a president who wishes to violate the law and the Constitution to turn the presidency into a means to promote the president’s agenda of personal gain for himself.

On December 18, 2020 Trump lawyer Sidney Powell met with Trump and several of his advisers to go over the draft executive order dated December 16, 2020 which would order the defense secretary to seize all the voting machines in an effort to overturn the November 2020 election results. Ultimately the draft executive order was never carried out with Attorney General Bill Barr resigning and many others in key positions in the Justice Department threatening to resign. The lies told on Fox News claiming voting machine fraud resulted in Fox News being sued and settling out of court with Dominion voting machines for $787.5 million dollars. Trump now understands that he must replace all senior Justice Department officials and military leaders with hard-core, dedicated Trump loyalists in order to follow President Putin’s example in adjusting election results to his liking.

Trump is running to permanently take control of the government and establish an authoritarian dictatorship that might make Putin’s regime in Russia look mild and timid in comparison. One of the first laws that Trump will have the Congress pass will be to protect the presidency for those who “love our country” and from “unpatriotic, anti-American, traitors” who disparage the presidency. As in Russia, anyone criticizing the president or the policies promoted by the president will be prosecuted.

Let’s face it.  Trump had no intention of leaving the presidency at the end of the four years in his first term.  He only failed because he failed to replace the top Justice Department officials, the top military commanders, the top Capitol police commanders, and the top Secret Service commanders with people who would do whatever he said regardless of having taken an oath to abide by the rule of law and the Constitution. But now Trump’s followers know that as president he will pardon them if they violate the law on his behalf.

Trump is not running for four-more-years. He will just follow Putin’s example and have Congress change the law.  Last time he attempted to stay in power regardless of the popular vote.  He urged his followers to stop the certification of the vote. He knew that that some had guns. They made their intentions clear when they chanted “Hang Mike Pence,” overpowered the police to push through the police barricades, and smashed windows to force their way into the Capitol building. Nine people died, several police were injured trying to defend the Capitol from the insurrectionists, and several million dollars of damage was done to our Capitol Building. Trump has made clear his intention to pardon many of these “patriots.”

Trump failed to stop the certification of the vote because he didn’t replace the Justice Department, military, police and Secret Service leaders with his own loyal surrogates.  He will not make that mistake again. Trump is not running for four more years as president. Trump clearly intends to replace the rule of law and adherence to the Constitution with his own permanent personal dictatorship.

If Donald J. Trump gets back into the White House and proceeds to correct his mistake in his first term of failing to replace the Justice Department officials, the military leaders, the Capitol police leaders, and the Secret Service leaders with his own sycophants and, thereby, eliminates the rule of law and the Constitution and replaces our democratic republic with a permanent Trump dictatorship, you will have to ask yourself:  “What could I have done a year ago to prevent this tragedy from happening?”   How much money would you have given?  How much time and effort would you have put in to prevent replacing the rule of law and adherence to the Constitution with the permanent Trump dictatorship?  Should I have posted more on Facebook? Should I have taken the time to talk with my neighbors, friends, and family members? Think about this now before it is too late. There is a lot more at stake here than the privacy of your digital transactions.