Trump Bans Central Bank Digital Currency (CBDC), But Synthetic CBDC May Be Worse…
Trump’s executive order, “Strengthening American Leadership in Digital Financial Technology”
by Coin Market Cap and Naked Capitalism
Trump’s executive order, “Strengthening American Leadership in Digital Financial Technology”, bans the creation and issuance of central bank digital currencies (CBDCs) in the United States. The order defines CBDCs as digital money denominated in the national currency and directly issued by the central bank. The EO also establishes a presidential working group to draft a regulatory framework for digital assets like cryptocurrencies and stablecoins. Trump’s ban fulfills his campaign promises to the cryptocurrency industry, where he vowed to oppose CBDCs and support Bitcoin.
In November 2024, we published an article by Naked Capitalism that explained that President Trump appears to be on board with US dollar-backed stable coins like Tether, Circle, Stripe and Paypal, which will be just as programmable and surveillable as CBDC. He rejects direct digital currency issuance by the Federal Reserve, but does not reject surveillable, programmable money. Digital money can be frozen and seized.
From Coin Market Cap:
On Jan. 23, U.S. President Donald Trump signed an executive order banning the creation and issuance of central bank digital currencies (CBDCs) in the United States. The order defines CBDCs as digital money denominated in the national currency and directly issued by the central bank. It prohibits any federal agency from developing, promoting, or implementing plans related to CBDCs unless required by law. Any ongoing initiatives must be immediately terminated.
The executive order, titled “Strengthening American Leadership in Digital Financial Technology,” also establishes a presidential working group to draft a regulatory framework for digital assets like cryptocurrencies and stablecoins. This group, chaired by David Sacks, Trump’s “AI and crypto czar,” will include the treasury secretary, attorney general, and chairs of the SEC and CFTC. Its mandate includes evaluating the creation of a national digital assets stockpile and addressing market oversight, consumer protection, and risk management for digital assets.
Excerpt from Naked Capitalism:
Meanwhile, Back in the US…
Dollar-backed stable coins are being touted as a means of entrenching US financial supremacy supremacy in global finance. Trump appears to be on board with the idea, pledging at the recent Bitcoin Conference 2024 to “create a framework to enable the safe, responsible expansion of stablecoins […] allowing us to extend the dominance of the US dollar to new frontiers all around the worlds.”
That will not be the only dark side of this new vision. As Mark Goodwin and Whitney Webb report in Bitcoin Magazine, the fast-growing stablecoins being issued by the likes of Tether, Circle, Stripe and Paypal will be just as programmable and surveillable as CBDCs:
Considering that “private” stablecoin platforms are already so intertwined with a government known to warrantlessly surveil civilians both domestically and abroad, the surveillance concerns are analogous to the surveillance concerns around central bank digital currencies (CBDCs). In addition, with stablecoins being just as programmable as CBDCs, the differences between stablecoins and a CBDC would revolve largely around whether the private or public sector is issuing them, as both would retain the same functionality in terms of surveillance and programmability that have led many to view such currencies as threats to freedom and privacy. Thus, Trump’s rejection of CBDCs but embrace of dollar stablecoins on Saturday shows a rejection of direct digital currency issuance by the Federal Reserve, not a rejection of surveillable, programmable money.
So the question remains, why wouldn’t the U.S. government just make a retail-facing CBDC? For starters, there are likely more limitations for a public sector entity on who and what they can restrict on their platforms. However, the main reason is mostly an economic one: they need to sell their debt to someone else to perpetuate the U.S. Treasury system.
In recent years, stablecoin operators have become big buyers treasuries, “gobbling up $150 billion of U.S. debt –– in the form of securities issued by the Treasury –– in order to ‘back’ the issuance of their dollar-pegged tokens with a dollar-denominated asset.” Stablecoin issuers are now the 18th largest holder of US debt. And as Godwin and Webb document, the companies that own them are zealously collaborating with US authorities in seizing funds of blacklisted individuals and companies:
In the case of the dollar stablecoin Tether (USDT), Howard Lutnick, the CEO of Cantor Fitzgerald which holds Tether’s Treasuries, has stated his affinity for the company by making reference to Tether’s recent trend of blacklisting retail addresses flagged by the U.S. Department of Justice. “With Tether, you can call Tether, and they’ll freeze it.” On Saturday, Trump mentioned Lutnick by name in his speech, calling Lutnick – one of the longest standing, top traders of U.S. government debt – “incredible” and “one of the truly brilliant men of Wall Street.”
Last October, Tether froze 32 wallets for alleged links to terrorism in Ukraine and Israel. The next month, $225 million was frozen after a DOJ investigation alleged that the wallets containing these funds were linked to a human trafficking syndicate. During December 2023, over 40 wallets found on the Office of Foreign Assets Control’s (OFAC) Specially Designated Nationals (SDN) List were frozen by the stablecoin issuer.
Not only is Trump’s plan nothing new, it already has a name — in fact, has done since 2019 when two senior IMF economists, Tobias Adrian and Tommaso Mancini-Griffoli, gave it one: “synthetic” CBDC, or sCBDC. The IMF has been one of the biggest proponents of CBDCs and has even released a handbook for global central banks regarding their development and implementation. The Fund was a major consultant in the development and roll out of Nigeria’s eNaira, which together with the central bank’s disastrous demonetisation program, contributed to the country’s current economic crisis — its worst in decades.
In 2019, Adrian wrote on the IMF’s Blog that sCBDCs have notable “advantages” over the full-fledged version, in which the central bank creates tokens or offers accounts to the public:
Synthetic CDBC outsources several steps to the private sector: technology choices, customer management, customer screening and monitoring including for “Know Your Customer” and AML/CFT (Anti-Money Laundering and Combating the Financing of Terrorism) purposes, regulatory compliance, and data management — all sources of substantial costs and risks. The central bank merely remains responsible for settlement between trust accounts, and for regulation and close supervision including eMoney issuance. If done appropriately, it would never need to lend to eMoney providers, as their liabilities would be fully covered by reserves.
A synthetic CBDC is essentially a public-private partnership that encourages competition between eMoney providers and preserves comparative advantages.
Just what the world needs: another private-public partnership in the financial arena! While recent statements from Trump and other Republican politicians may offer a sliver of hope that the US will somehow resist the global march toward CBDCs, they should also be taken with a generous dose of caution. While bread-and-butter CBDCs have finally begun receiving the public attention they deserve due to their terrifying surveillance and seizure potential, few realise a privately issued synthetic CBDC could do much the same –– and perhaps even more.
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