Anyone who believes that "Cash is King" would be surprised to find that his or her greenbacks are not welcome in many stores and restaurants across the country where transactions are conducted exclusively using some form of electronic payment such as credit and debit cards.
Indeed, the Federal Reserve reports that the use of cash in the United States dropped from 40% of transactions in 2012 to 19% of transactions by 2020. Other countries have seen even more drastic declines in the use of cash such that the proportion of cash payments in that same 8-year period in Sweden plummeted from 33% to less than 10%. China, for its part, has seen point of sale payments from mobile wallets or apps rise to 50% of all transactions with cash cratering to 13% of all transactions during that same time.
Cash transactions tend to be lower-valued (e.g., groceries, gasoline, recreational drugs) because most people find it inconvenient to lug a suitcase of dollar bills or a wheelbarrow of pennies to a business to purchase "big ticket items" such as a new car or truck.
Plastic cards can also provide an element of personal safety because consumers do not have to take the time to count out bulky bags of change in the checkout line and can thus avoid enraging gun-toting customers standing behind them.
Prompted in part by the proliferation of cryptocurrencies and the nascent threat they pose to the currency monopolies enjoyed by national governments, more and more countries around the world have begun to explore creating officially-sanctioned digital currencies called central bank digital currencies or CBDCs.
In the United States, the Federal Reserve has issued a report examining the pros and cons of CBDCs but it has refrained from offering any recommendations regarding whether a CBDC should be established at all — leaving it to the geniuses in the White House and Congress to determine the desirability of having a digital currency.
Proponents argue that a digital currency would enable the federal government to provide digital cash that is backed by the full faith and credit (or whatever is left of it) of the United States. Not so clear is the means by which such a system would operate but it would be legally sanctioned and would therefore offer a degree of protection that is not possible with cryptocurrencies.
Cryptocurrencies such as bitcoin were designed to be a medium of exchange that could bypass governments and national currencies and ostensibly avoid the chronic mismanagement of those fiat currencies by politicians that so concerned bitcoin's founder, Satoshi Nakamoto.
CBDCs would incorporate aspects of decentralized currencies such as bitcoin, but also be issued and managed by the Federal Reserve. However, the Federal Reserve has not indicated that it has any great appetite to add a digital currency to its plate because it is already struggling to manage the economy to maximize employment and stabilize prices without the cooperation of our free-wheeling, fun-loving, devil-may-care Congress which continues to spend hundreds of billions of dollars each year more than it collects in taxes.
In all likelihood, any digital currency would probably be handled the same way as actual cash with private banks maintaining digital accounts for their customers so that the grand wizards who work in the Federal Reserve building in Asgard would continue dealing only with banks and not actual consumers.
Aside from concerns that private cryptocurrencies could challenge the primacy of national fiat currencies, the creation of CBDCs is also being pushed as a way to reduce the costs of banking by enabling individuals to bypass the current fee-laden banking network.
But if the Federal Reserve issued digital wallets directly to each consumer instead of leaving it to the private banks, then the need for an entire array of banking services might be lessened and the profitability and, indeed, viability, of much of the national banking system could be jeopardized.
On the other hand, digital wallets issued by the Federal Reserve could make it possible for the estimated 5% of the national population (16 million people) who do not have any bank accounts to conduct financial transactions because the Federal Reserve could make such funds instantly available to customers by depositing them directly into these digital wallets.
But digital currencies also raise the specter of every transaction by every consumer being recorded and monitored by well-meaning government bureaucrats, thereby eliminating the anonymity that is still possible with cash transactions.
Certainly no government official would ever dream of collecting data about the spending habits of any American citizen but on the off-chance that a rogue employee wanted to track the spending history of his childhood enemy, for example, then it would certainly be possible to uncover every purchase ever made using that digital currency.
The potential for abuse is evident because every digital transaction could be taxed by the government (which always knows how best to spend every dollar extracted from the citizenry). It could also give rise to a system of social credits similar to that being implemented in sunny workers' paradises such as China in which the government could condition access to bank accounts on the behavior (e.g., political activities) of individuals.
Indeed, such abuses can occur in democracies such as Canada where the government froze the bank accounts of striking truckers who had blockaded the streets of Ottawa in 2022.
It is not inconceivable that our own political overlords could decide to cut off the availability of our bank accounts if we engaged in socially — or politically — unacceptable behavior. So any adoption of a digital currency will have to include a regulatory apparatus that safeguards the rights of individuals, a task that will pose formidable challenges at the very least.
Jefferson Hane Weaver is a transactional lawyer residing in Florida. He received his undergraduate degree in Economics and Political Science from the University of North Carolina and his J.D. and Ph.D. in International Relations from Columbia University. Dr. Weaver is the author of numerous books on varied compelling subjects. Read more of his reports — Here.
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