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This is the Cato Daily Podcast for

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Thursday, May 23, 2024. I'm Keyle Brown.

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The more people learn about central bank

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digital currency, the less they like it.

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But that hasn't and likely won't stop

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efforts for the US to adopt some

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form of the privacy killing technology. Cato's

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Nick Anthony argues that among the arguments

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presented on behalf of CBDCs, the one

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that stands out is

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literally impossible. What

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is CBDC? Nick,

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let's recap a little bit because

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we've talked about central bank digital

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currencies on a number of occasions.

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CBDCs and the

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flawed, deeply flawed

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rollouts of CBDCs

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in other countries thus far

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seemingly has not deterred those

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in the US and elsewhere

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looking at potentially

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rolling out a CBDC. We've

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talked about the privacy

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implications of

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CBDCs, the financial privacy

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implications, the fact that

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the government would be in some

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ways able to direct how

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money gets spent

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and notably how it cannot be

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spent. But there is one element

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here that you and our colleague

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Norbert Michel have noted, which is

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this weird claim that

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seems to undergird

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arguments on behalf of

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CBDCs. And that is

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the notion of a level playing

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field. Can you steel man this

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for us? Give us the

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best version of the

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CBDC fanboys, we'll call them. What

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they say when they talk about a

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level playing field. field in terms of

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digital currencies. Well, one of

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the benefits of my work here

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at Cato and my work with the

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Human Rights Foundation, maintaining the

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HRF CBDC tracker, is

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that I can pull the best arguments

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from around the world to

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try to build the best case here,

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even though no individual case is quite

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there. And there's

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this fundamental idea that a

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lot of central bankers have tried to get

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at, that they want to

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provide something that will compete with

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the private market. They want to

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compete with things

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as fundamental as bank accounts

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or prepaid cards and

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things as new and novel

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as cryptocurrencies, whether that be

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Bitcoin, Circle

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or Tether, what have you. And

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so their fundamental

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argument is that they will compete

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with the private sector and

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competition makes everything better. At

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first glance, I agree with

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that, I want more competition. But what are

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the features that they see in

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other currencies that

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they believe CBDCs will

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be providing? Presumably

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speed is one of them. That

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is one of them. They often argue

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that it'll provide instant

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transactions or instant

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settlement rather. It'll be free

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to use, so there's no fees associated

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with anything you want to do with

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it. Sometimes it'll pay

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interest so that you can make

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money just by holding it effectively like

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you would if you were holding it

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in a savings account, except they'll pay

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more than that. And

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then also just having

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a direct hand where monetary policy can

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change the individual holding. So those are

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some of the characteristics.

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statistics that are common

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across many of the proposals

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that create the largest effect.

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Yeah, if I'm a central banker and I

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wanted to pitch CBDCs, I'm getting off topic

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here. I apologize for that. But

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if I'm a central banker and I

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wanted to suddenly give every

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American a cash

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infusion for

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the purposes of, I don't know,

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goosing spending, for example, increasing

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the velocity of money for

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it temporarily, CBDCs seem

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like they could help achieve that

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really efficiently, instantaneously

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and in a way that would, if

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nothing else, do it in

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an equitable, quick way. But

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that's, of course, not what we're talking

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about. We're talking about a level playing

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field. So speed is one. Are there

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other elements that the central bankers

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believe would enhance a level playing

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field? Well, as far

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as enhancing a level playing field, they

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actually often shy away

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from that concept. Rather,

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they just say that it's going to

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offer all of these features, the speed,

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as you mentioned, monetary policy, implementation,

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and the like. It will offer all

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those characteristics, but they

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kind of dance around how that playing

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field is actually going to work in

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practice. Okay. And

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that is to their credit.

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I suppose that they don't want to

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talk about that directly, because as you

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and Norbert have pointed out,

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the very notion of

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a level playing field between,

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let's say, a popular cryptocurrency

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and a CBDC is

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an absolute impossibility. That

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is exactly right. And

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it's almost too

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ridiculous to critique, because

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it should be obvious. And yet, this

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is something that is danced around time and time. time

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again. Of course, competition is something that

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I want to see more of in

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financial services. But

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as George Selgin as well has written about,

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it's something that is incredibly

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important that happens on a level

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playing field that everyone is coming

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at this on the same

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page. If you have

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barriers to entry or legal

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privileges on one side or

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the other, you're creating an unlevel playing

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field and you're shifting it in the

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favor of one entity or another. And

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in this case, it

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really shouldn't need to be said that

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a federal government has

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unbelievable legal privileges that give

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it a huge advantage over

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any private sector player. So that's

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anyone from a cryptocurrency

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startup in somebody's garage

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or a major financial

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institution on Wall Street.

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All of those pale in comparison

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to the advantages that federal governments

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have in their ability to create

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the rules, enforce the rules, and

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change them on their own behalf.

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A great small example of this is

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George Selgin pushed back on

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this same principle with the

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creation of FedNow, the Federal

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Reserve's real-time payment system. And

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he warned that the Federal

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Reserve is able to lower

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its prices beyond the market

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price. And now

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in practice, we're seeing exactly

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that. The Federal Reserve has a

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$0 fee to join the FedNow

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service. And it keeps updating that it's

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going to keep the entry fee at

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$0. How

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a private sector competitor is supposed

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to say, oh yeah, the fee

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for entering our service, yeah, it's

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$0. How they're supposed to do

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that in comparison, I really don't know. It

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reminds me a little bit of in

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the run-up to Obamacare, the arguments around

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a public option. health

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care plan, which

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is the same people who

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have the power to tax other

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options are going to offer a

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public option. The notion

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that the government's hands are

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tied in terms of

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making a public option, the only

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option is sort of laughable.

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So this should be a powerful

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argument against developing a

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CBDC or rolling one out in the US.

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I suspect that the interests

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aligned on behalf of this are

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also undeterred. Unfortunately,

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like we were talking about

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earlier, they've really just danced

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around this issue and tried

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to say that competition is going to

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come through and they ignore the aspect

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that this is an unfair advantage and

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this should be something that clearly says

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or this should be an observation that clearly

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shows that this is a

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bad idea. This is something that could

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overturn the entire system and

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yet they continue to push forward.

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They continue to move forward saying,

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well, we need this. We

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still need to do this. People still

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want this. And I

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really don't think people want this. I really

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don't think we need this. And

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I really don't think we still need to

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do this as evidence continues to

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come out that CBDCs are a bad

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solution and really

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don't fix the problems we're

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facing in the current system. Nick

9:43

Anthony is a policy analyst at the Cato Institute. Subscribe

9:46

to and rate The Cato Daily podcast

9:48

anywhere you like. Thank

9:50

you for listening.