The privately-owned Federal Reserve, whose monetary policy primarily benefits the financial community rather than citizens or consumers and the proximate cause of current boom/bust cycles, has released its report on digital currency. The report is the opening shot of a publicity campaign to solicit public comments on the public’s attitude and appetite for digital currency.

However, before I comment on the report, note a few considerations.

(1)  Money, like all currencies, is valued only by the perceived value of its underpinning assets or the faith in the credit and stability of the issuer. 

(2)  Cryptography is not an absolute protection from theft or collapse as developments in advanced mathematics and quantum computing can suddenly make algorithmically-protected currencies vulnerable to manipulation. And cryptographically-protected blockchain ledgers are not invulnerable to manipulation. Electronic currencies are extremely vulnerable to an EMP (ElectroMagnetic Pulse) attack, the failure of your electronic wallet storage device, or password loss, especially from memory issues. And, the most dangerous vulnerability comes from trusted insiders with access to the “keys to the kingdom” who, like all individuals, may be susceptible to compromise.

Counterfeiting aside, there is a degree of protection in a widely held and distributed physical currency that can be protected by conventional measures. 

(3)  Do not confuse and conflate government-issued digital currency with such digital offerings as Bitcoin. They are not protected by scarcity because the government can overtly or covertly increase the supply of digital currency like they do our current monetary supply. The are worth what the government says they are worth. They are not anonymous. They may be converted into a physical form only at the pleasure of the issuer or exchanges.The government has its dirty, greasy hand in your pocket at all times. And, worst of all, they are un-American in that digital currencies can be linked to a surveillance state-based social scoring system similar to the Chinese Communist model. 

(4)  Electronic currencies will be sold to the public as a voluntary complement to current financial systems, and not a replacement – until a government deems otherwise.

(5)  While the Federal Reserve is said to not favor any policy outcome, this is bullpucky. They do not favor any policy outcome they cannot design, implement, control, and monitor.

(6)  Comments solicited from the public are a ruse. Most individuals do not have the technical ability or background to understand the nuances of public policy or the unsaid or unanticipated consequences of what is being proposed. Most individuals do not have the time or the motivation to write an informed comments. The vast bulk of responses will come from industry participants, lobbyists, so-called public interest or advocacy groups, and those who will see disruptions in their current business models. Since all public comments are public – including your identifying information, individuals are reluctant to add their name to what could easily become a target list.

With that said, let us consider the 40-page report titled, “Money and Payments: The U.S. Dollar in the Age of Digital Transformation.”

Executive Summary

For a nation’s economy to function effectively, its citizens must have confidence in its money and payment services. The Federal Reserve, as the nation’s central bank, works to maintain the public’s confidence by fostering monetary stability, financial stability, and a safe and efficient payment system.

[OCS: Considering the fact that the Fed provided money at near-zero rates to recapitalize technically insolvent financial institutions at the expense on depositor’s and investor’s interest rates, they act in their own self-interest and to pretend otherwise is bullpucky. Do you have confidence in a single corrupt, non-government entity that can and will control your life?]

This paper is the first step in a public discussion between the Federal Reserve and stakeholders about central bank digital currencies (CBDCs). For the purpose of this paper, a CBDC is defined as a digital liability of a central bank that is widely available to the general public. In this respect, it is analogous to a digital form of paper money. The paper has been designed to foster a broad and transparent public dialogue about CBDCs in general, and about the potential benefits and risks of a U.S. CBDC.

[No! It is the first step in a campaign to convince the American public to reinforce the privately-owned Fed control over our economy and for the public to accept their policies as beneficial.]

The paper is not intended to advance any specific policy outcome, nor is it intended to signal that the Federal Reserve will make any imminent decisions about the appropriateness of issuing a U.S. CBDC.

[OCS: The policy outcome is Fed control. The signal is that we want to do it, but we must first condition the public battleground.] 

The twenty-two questions to start the “conversation” on CBDC (Central Bank Digital Currency) …

[OCS: Note that everything revolves around the implicit assumption that the “privately-owned” non-government entity will be controlling the monetary future of the nation.]

1. What additional potential benefits, policy considerations, or risks of a CBDC may exist that have not been raised in this paper?
2. Could some or all of the potential benefits of a CBDC be better achieved in a different way?
3. Could a CBDC affect financial inclusion? Would the net effect be positive or negative for inclusion? [OCS: One might consider that any financial system be neutral and not be vulnerable to the type of inclusionary measures envisioned by social justice warriors. A key question, how many people do not have electronic devices, the ability to understand and use these devices, and wi-fi connectivity when and where it is needed?]
4. How might a U.S. CBDC affect the Federal Reserve’s ability to effectively implement monetary policy in the pursuit of its maximum-employment and price-stability goals? [OCS: Will digital currencies affect the ability for the Fed to manipulate our currency and thus the broader economy on behalf of their ownership?]
5. How could a CBDC affect financial stability? Would the net effect be positive or negative for stability?
6. Could a CBDC adversely affect the financial sector? How might a CBDC affect the financial sector differently from stablecoins or other nonbank money?
7. What tools could be considered to mitigate any adverse impact of CBDC on the financial sector? Would some of these tools diminish the potential benefits of a CBDC?
8. If cash usage declines, is it important to preserve the general public’s access to a form of central bank money that can be used widely for payments? [OCS: Consider the storage of ALL money at the Fed using the Fed’s regulations?]
9. How might domestic and cross-border digital payments evolve in the absence of a U.S. CBDC?
10. How should decisions by other large economy nations to issue CBDCs influence the decision whether the United States should do so?
11. Are there additional ways to manage potential risks associated with CBDC that were not raised in this paper?
12. How could a CBDC provide privacy to consumers without providing complete anonymity and facilitating illicit financial activity? [OCS: They are only worried about anonymity from taxing authorities, intelligence, and law enforcement agencies – which have been politicized and corrupted. Remember, the government determines what is illicit.]
13. How could a CBDC be designed to foster operational and cyber resiliency? What operational or cyber risks might be unavoidable?
14. Should a CBDC be legal tender?
15. Should a CBDC pay interest? If so, why and how? If not, why not?
16. Should the amount of CBDC held by a single end-user be subject to quantity limits?
17. What types of firms should serve as intermediaries for CBDC? What should be the role and regulatory structure for these intermediaries?
18. Should a CBDC have "offline" capabilities? If so, how might that be achieved?
19. Should a CBDC be designed to maximize ease of use and acceptance at the point of sale? If so, how?
20. How could a CBDC be designed to achieve transferability across multiple payment platforms? Would new technology or technical standards be needed?
21. How might future technological innovations affect design and policy choices related to CBDC?
22. Are there additional design principles that should be considered? Are there tradeoffs around any of the identified design principles, especially in trying to achieve the potential benefits of a CBDC?

Bottom line…

Feel free to answer the questions and submit them to the Federal Reserve here.

But ask yourself, how will you respond to a regional disaster, a dead, dropped, or stolen device, lack of communications, or simply navigating a neighborhood and engaging in everyday transactions?

We are so screwed.

-- steve