September 28, 2024
We Should Welcome the Digital Dollar!
Philip Kotler
You will be reading warnings from a variety of interest groups that the government is going to spy on your personal income and spending. Here is a warning from Insider Trades:
You see Biden and the Fed have teamed up to create a controllable, traceable, programmable digital currency to replace the dollar…Giving ‘them’ full control to:
· Legally spy on how you spend every penny of your money…
· Take control of your bank account and your purchases…
· Silence any political opponents…
And once Biden rolls out the rest of Executive Order 14067…Every single American and every single business is in grave danger of losing their social and financial freedoms.
Here’s another warning, this one from Brief Updates:
In a cashless society, Biden forces you to use the government’s new “digital dollar”…
Giving them a stranglehold on everything you love and believe in.
They can and WILL track everything you buy, monitor your accounts, freeze your money for weeks at a time, and even confiscate your retirement funds.
Admittedly, this is scary.
Background on the Digital Dollar
The Digital Dollar is another new form of money. Money forms have evolved through time, starting from the use of accepted seashells for payment. Seashells were replaced by physical coins and later by paper money such as dollar bills. Countries have been issuing banknotes for over 300 years. The banknotes are backed by gold or more currently by government fiat and promise. While the citizens of most countries use physical cash for many transactions, some believe that physical cash will eventually be replaced by digital dollars.
The Digital Dollar, if approved, would be issued by the U.S. Federal Reserve. It is more formally called a Central Bank Digital Currency (CBDC). The Federal Reserve may decide to add the digital dollar as another optional currency or eventually replace all physical cash with the digital dollar. The digital dollar would be legal tender and backed by the full faith and credit of the U.S. government.
Most commercial transactions today are not carried on with physical money, i.e., paper dollars and coins. People pay their bills increasingly with credit cards or drawing checks from their bank account. Companies pay their bills and their employees by credit transfers and by paper checks.
Customers shopping at the grocery store pay with their debit or credit card. A minority still pay with cash and coins. In buying a car, many customers pay with a check or credit card, although some still pay with dollars.
The total amount of U.S. currency in circulation in 2022 was $2,259 trillion dollars. U.S. currency consists of banknotes $1, $2, $5, $10, $20, $50, and $100. and coins from 1 cent, 5 cents, 10 cents, 25 cents, and 50 cents. What is the Federal Reserve’s cost of printing so much currency each year? The 2024 currency operating budget is $1.104 billion. If the government eventually eliminates physical currency, replacing all of it with digital currency, the government will save over 1 billion dollars each successive year.
As the digital revolution grows, there will be less need for paper money and coins. Eventually all of a person’s “cash” might be in his or her bank account(s). Persons can pay for everything from their credit card or bank account.
At the same time, many citizens want to hold some physical cash, even as an emergency currency in case of a bank closing or failure. They want to have some physical money to use for some common payments. Today there is pressure to stop minting pennies. Pennies cost more to make than they are worth, costing taxpayers tens of millions of dollars each year. Pennies slow down business by needing to be counted. The main beneficiaries are those who mint pennies. On the other hand, people grew up with pennies and many collected pennies. The penny reminds them of their youth and Abraham Lincoln’s picture.
Can the Government Use the Digital Dollar to Spy on Citizens Dollar Holdings and Spending Patterns?
Those opposing the launching of the digital dollar say that government would be able to spy on citizens’ dollar holdings and spending patterns. Consider the case where the government suspects a Mafia mobster. The government would learn about that citizen’s banks and companies. The government would insist on seeing the person’s bank account to follow money coming in and out of the citizen’s bank account. Large incoming sums would be traced back to the payers. That citizen would be aware that his account is being watched. He would not want ill-gotten money to come into his bank account. Today he keeps ill-gotten gains in the form of physical cash likely stored in a safety box or eventually laundered. The Mafia person benefits from the existence of physical cash. If the government eliminated physical cash, it would be much harder to hide ill-gotten gains.
The Government would also watch persons with high incomes and wealth. Many wealthy individuals hire lawyers to propose ways to cut down their taxes. The old solution was to deposit money in a secret name or number account in a Swiss bank or a bank in Latin America or in Asia. Recently, Swiss banks have become less attractive because they now allow the U.S. government to track down U.S. citizens hiding their money. Today other banks in The British Virgin Islands, the Bahamas, the Cayman Islands, Cook Islands, and Belize assist in hiding money. Other wealthy persons may chose to instead set up a shell company. A shell company is a legally structured corporation that has no meaningful assets or business operations but does financial transactions. Shell companies are often used to conceal illegal businesses, or to conceal business owners from law enforcement or the public.
Will Ordinary Honest Citizens be Harmed by the Digital Dollar?
Aside from spying on persons with ill-gotten gains or with hidden untaxed wealth, the ordinary citizen’s income or spending behavior would be of little interest to the government. It is commercial firms, not government, which have a great interest in studying the income and spending patterns of ordinary citizens.
Who Opposes the Elimination of Physical Money?
The main opponents of physical cash are mainstream Republicans, Silicon Valley libertarians and anti-establishment leftists, citing concerns over privacy and government control. U.S. Sen. Ted Cruz (R-Texas), joined by several other Republican senators, filed legislation in 2024 to halt efforts by the Biden administration to issue a central bank digital currency.
The two groups who mainly will be affected by the elimination of physical money are those with ill-gotten gains and the rich who want to hide their wealth and reduce their taxes. Clearly the number of members in these groups is too small to block the vote for the digital dollar. Their main hope is to convince ordinary Americans that the government will spy on them and even take control of their bank accounts. They may scare Americans about not having paper money and coins.
Conclusion
Eleven countries have implemented a CBDC option among their payment services. They have kept their physical cash system as well. The 11 are the Bahamas, Antigua and Barbuda, Anguilla, St. Kitts and Nevis, Montserrat, Dominica, Saint Lucia, St. Vincent and the Grenadines, Grenada, Jamaica, and Nigeria.
All G7 economies are now in the pilot stages of considering a CBDC. Canada, France, China, India, and South Korea are studying and testing the possibility of having a CBDC.
To date, CBDCs have been implemented in two countries, Finland and Ecuador where they have failed and been abandoned.
Is the U.S. going to adopt the Digital Dollar? So far, the Federal Reserve has not decided to transition to a CBDC. It is not clear about whether the Fed would adopt CBDC as a supplement to its existing monetary system or also eliminate physical cash. The Fed is researching the effects that a CBDC would have on the dollar, the US, and the global economy. The Fed has to be satisfied that the digital dollar will be a safe digital asset. It must determine that CBDC would not have credit and liquidity risks and that it safeguards consumers’ privacy rights while impeding criminal activity.
The main advantages of the digital dollar are (1) it provides a quick way to make a digital payment, (2) it allows saving a billion dollars each year by not minting new coins and paper money, and (3) it might lead to substantial increases in tax revenue upon detecting ill-gains or hidden money. The main disadvantages are: (1) it might be hackable as happened to a lot of crypto currencies, and (2) it might be used political by the government in power to inspect specific accounts.
The best idea is to introduce the digital dollar as another choice in the existing currency system.
If it works well and grows in use, more people will adopt it and reduce their use of physical cash. The point might eventually arrive when the government decides that holding physical cash is illegal and it all must be turned into digital money.
