The United States' leadership in the global economy is propelled by our ability to leverage innovations that make markets and communication more efficient. The United States responded to the emergence of the internet by advancing policies that prioritize American values of privacy, individual sovereignty, and free markets.
Today, the internet stands as an infrastructure that any American can access and build upon freely, without the permission of public officials. America remains a technological leader not because we force innovations to adopt our values under regulatory duress, but because we allow technology that holds these values at their core to flourish.
The next phase of the digital economy is what some refer to as the "ownership economy," a new evolution of financial transactions, which consist of a trusted, immutable mechanism for transferring value in real time over the internet. But this too must be approached through the advancement of policies that prioritize American values of privacy, individual sovereignty, and free markets.
In our increasingly digitized economy, it is clear that two key problems must be solved in order to maintain these values. First, although cash may be viewed as increasingly more inconvenient, decentralized currency is necessary for privacy and financial inclusion. Second, our financial system's multi-day transaction settlement window introduces risks to the market. To maintain global leadership and move toward the "ownership economy," the United States must allow a trusted, easily accessible digital version of the dollar that can and settle in real time to come to market. This is where a central bank digital currency enters the discussion.
On its face, a CBDC could accomplish these objectives and increase economic efficiency. However, we should be asking, "What are the consequences if we develop a CBDC and get it wrong?"
There are two forms of CBDC — wholesale and retail. The less discussed "wholesale CBDC" refers to financial institutions' tokenizing their assets held at the Federal Reserve to facilitate real-time interbank payments and settlement.
A "retail CBDC" refers to a tokenized version of the dollar that individual Americans would access from the Fed or from their financial institution, depending on the design. Each time an individual spends the CBDC, that transaction is recorded on a blockchain controlled by the government.
The Biden administration is currently pursuing analysis on a retail CBDC. Through a series of executive order directives focused on CBDC research and development, and a mindset that the United States has fallen behind other nations like China in crypto development, the Federal Reserve, the Treasury, the White House and others are frantically working to, in their minds, keep up with our competitors.
But nothing could be more dangerous than adhering to a manufactured sense of urgency and ultimately developing a CBDC that is not open, permissionless, and private. This type of outcome will create significant privacy and security risks. More broadly, if a CBDC does not emulate the core tenets of cash, it will give the federal government control of every financial transaction.
The question becomes, then, "How can we digitally emulate cash in an increasingly cashless economy?" The answer: We must be patient, allow the private sector to innovate, and we must learn from the numerous abuses of financial freedom enabled by the digital economy elsewhere in the world.
Take, for example, the trucker protests in Ottawa last February. The Canadian government weaponized the banks to freeze its own citizens' bank accounts and disrupt the protests. Another example is China's use of its COVID tracking system to prevent its citizens from accessing funds in their bank accounts in an attempt to stop a bank run. Shifting to a cashless economy is inevitable, but we should never surrender decentralized money.
I believe the United States should be in an entirely different competition than other nations that are racing to develop a CBDC. We should be in a race to develop digital cash.
Developing, or supporting, a digital version of the United States dollar that makes transactions more efficient, extends financial inclusion and does not compromise an individual's sovereignty will send us into the next several generations of the digital economy.
A recent White House report on a potential United States CBDC twists the concept of privacy, suggesting that Americans' right to financial privacy is best upheld by advancing a retail CBDC that runs on a blockchain, controlled and programmable by the central bank and intermediated by financial institutions. A "permissioned," identity-verified blockchain is an immutable database controlled by authorized parties, like the Fed, upon which individuals' financial transactions would be recorded with the ability to identify who is making what transactions.
If the United States allows technology intrinsically embedded with American values to flourish, we will unlock a more fair and accessible economic structure where individuals have more ownership over what they contribute to this economy. If we choose to abandon our values, we risk mimicking China's digital authoritarianism. Therefore, in our national discussion weighing whether Congress should authorize a CBDC, we must refuse to compromise the freedoms and individual liberties that underpin who the United States is as a nation and commit to designing or supporting an American product, with American characteristics, for the American people.
