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Florida governor Ron DeSantis has introduced legislation to ban the use of a future US central bank digital currency (CBDC) in the state, while a legal expert warns against the politicisation of the debate.
Earlier this week (March 20), DeSantis announced a legislative proposal that would amend Florida’s Uniform Commercial Code to explicitly prohibit the use of federal or foreign CBDC as money.
DeSantis, who is widely expected to run for President in the Republican party, argued the bill would protect Floridians “from the Biden administration’s weaponisation of the financial sector through a CBDC”.
The governor said “Big Brother’s digital dollar” is just another way of increasing surveillance and control of Americans.
Although a couple of states, including Texas and Oklahoma, have filed bills to oppose a federal CBDC, DeSantis’ legislation is unique in the sense that none of the previous state proposals went as far as to outright ban a future CBDC.
DeSantis also leads a coalition of 20 states to fight against Biden’s environmental, social and corporate governance (ESG) agenda and has now called on these states to adopt similar measures against a centralised digital dollar.
Shortly after DeSantis announced his bill, US Senator Ted Cruz (R-TX) introduced similar legislation in Congress which aims to prohibit the Fed from developing a direct-to-consumer CBDC.
Although these bills send a strong message to the politicians’ constituents, they seem to run years ahead of where the US stands in the process of developing a digital dollar.
At present, the US is “very far from the issuance of a CBDC”, according to Young Kim, counsel at Clifford Chance.
Policy discussions about a US CBDC started last January when the Fed released a discussion paper, but the debates are still ongoing as to whether a CBDC is even necessary and whether its costs outweigh the benefits.
“Given there is lots of debate going on, it seems strange that a state would go out to preemptively ban something that is far from existence,” Kim said.
In the same discussion paper, the Fed emphasised that it would only issue a CBDC with the support of the executive branch and Congress, and more broadly the public.
But there has been no movement in Congress to support the issuance of a CBDC in recent years and, according to Kim, it is unlikely that Congress would put it on its agenda within the next couple of years.
The bill nonetheless builds on Americans’ fears that a centrally issued digital dollar could be exploited to track or control how people spend their money and it comes as no surprise that DeSantis would take advantage of that to raise his profile, Kim noted.
An increasingly partisan issue
The notion of a CBDC was not always a political question. A couple of years ago, there were politicians on both sides of the aisle that generally supported a digital dollar, as well as those with reservations.
But the issue has become more partisan in recent years.
All of the bills filed at state and federal levels against a CBDC were introduced by Republican politicians, many of whom argue that it is an attempt at serious government outreach that would threaten personal financial freedom and security.
This is despite the fact that a large part of the money is already digitalised in the developed world and recent experience shows that governments already have the tools to freeze citizens’ accounts based on political motivation, regardless of whether the money is issued by a private bank or a central bank.
The downside of politicising the debate around the CBDC is, however, that it might divert the conversation from significant policy questions.
For instance, the collapse of Silicon Valley Bank (SVB) and Signature Bank, which marked the second and third largest bank failures in the history of the United States, could bring up interesting policy questions, such as “what does the CBDC do in terms of potentially exacerbating bank stress?”, Kim raised.
“If you are watching banks fall around you as you saw in the past two weeks, why would you hold your cash deposit at a bank? The sensible move would be to immediately convert it into a CDBC, which would exacerbate a run on the bank.”
“There are a lot of financial stability questions but I think the politicising of it is going to make it a challenge to flesh out those more interesting policy questions,” Kim added.
For his part on the SVB debate, DeSantis did not raise these policy questions around the CBDC but instead claimed that the bank failed due to its focus on “diversity, equity and inclusion”.
