The rise of central bank digital currencies is not a path the US should follow

From Algeria to Zimbabwe, governments are pushing forward with central bank digital currencies, or CBDCs. In fact, it’s even occurring here in the United States. According to the Human Rights Foundation’s CBDC Tracker, over 125 different jurisdictions ranging from territories to currency unions are researching, piloting and launching CBDCs.

But what has this effort meant in practice? On one side, it seems to have been a waste of taxpayer money. On the other side, it has also signaled a troubling future. As I explain at length in my new book, “Digital Currency or Digital Control?,” neither side looks good.

Consider the experiences in The Bahamas, Jamaica and the Eastern Caribbean Currency Union. Despite having launched CBDCs that are available to the public, these Caribbean governments have struggled to encourage adoption. To combat that, their governments have tried to spur adoption through incentives programs and giveaways.

Yet, as the Central Bank of The Bahamas has reported, use of its CBDC has still fallen dramatically. Bank of Jamaica deputy governor Natalie Haynes similarly acknowledged that merchants simply were not interested in taking on another payment system. 

This problem is not unique to the Caribbean. China boasts that over 261 million CBDC accounts have been opened, but few people appear to be using the CBDC to make regular payments. Even government employees paid in the Chinese CBDC have said, “I prefer not to keep the money in the [CBDC] app, because there’s no interest if I leave it there. There are also not so many places, online or offline, where I can use the [CBDC].”

With that said, the lack of adoption may have a silver lining. The creation of CBDCs endangers financial privacy, freedom, and markets by giving governments complete surveillance and control over money, but the impact of those risks is limited so long as adoption remains low or non-existent. The only open question is how long that will remain to be the case.

Around the world, governments have launched CBDCs in tandem with prohibitions on alternatives like cryptocurrency. China, India, Iran, Russia and Nigeria have all introduced varying bans on cryptocurrency. In fact, shooting itself in the foot, Nigeria even went so far to limit alternatives that it orchestrated a cash shortage. And many other officials have openly said that introducing a CBDC will help to eliminate cash.

So, whether the lack of adoption is allowed to persist is indeed an open question, and one people should pay close attention to.

Much of the rise of CBDCs has occurred abroad, but Americans should pay close attention too. President Joe Biden issued Executive Order 14067 in 2022 to place “the highest urgency on research and development efforts into the potential design and deployment options of a United States CBDC,” but the Federal Reserve had already been working on CBDC development for years at this point.

For example, the Board of Governors has published several updates, speeches and studies on CBDC overs the years. Likewise, the regional Federal Reserve banks have tested a hypothetical CBDC platform, developed the technical framework for a wholesale CBDC, and built a proof-of-concept project.

To be clear, research and experiments are not a problem.

What is a problem, however, is if those programs veer beyond theoretical models or closed experiments. For example, despite there being over 261 million CBDC accounts opened under the Chinese CBDC, the Chinese government still refers to itself as being in the “pilot” phase. While the motivations are unclear, several countries have blurred the lines with similar practices.

These developments were partly what inspired the House of Representatives to pass Rep. Tom Emmer’s (R-Minn.) bill to prohibit both the Federal Reserve and the Treasury from creating a CBDC without congressional authorization.

During the debates around the bill, some tried to argue that it’s unthinkable for the United States to lose the “CBDC race.” For example, prior to joining the White House as one of President Biden’s economic advisors, Lael Brainard said, “If you have the other major jurisdictions in the world with a digital currency, a CBDC offering, and the U.S. doesn't have one, I just, I can't wrap my head around that.” Yet, as Rep. Chip Roy (R-Texas) countered during these debates, the idea of America carving its own independent path is a welcome one.

Roger Huang said it best at the Oslo Freedom Forum when he noted, “The more control you give a government, the more they will exert that control.” As we head into election season, Congress would be wise to remember that power may sound appealing when you’re in charge, but who is in charge can change swiftly and dramatically.

Given the risk of abuse is so high with the sweeping powers a CBDC can offer governments and yet there are little to no benefits to help citizens, the rise of CBDCs is a path the United States should not follow.

Nicholas Anthony is a policy analyst at the Cato Institute, a fellow at the Human Rights Foundation, and the author of “Digital Currency or Digital Control? Decoding CBDC and the Future of Money.”