There is no constitutional right guaranteeing that you can spend your money as you please. Although there should be, and there’s precedent for thinking that money is akin to speech and spending it (within the bounds of established law) a form of expression.
This particular problem has come to light as the U.S. government studies a potential central bank digital currency (CBDC). A digital dollar, as it is sometimes called, is essentially a way to make an internet-native version of cash and coins.
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Central bankers, if they support CBDCs, often point to the greater control a state-run monetary ledger affords over microeconomic and macroeconomic policy. A digital dollar could help automate tax collection, streamline welfare payments and inform decisions around setting interest rates.
Like everything else in the internet age, CBDCs are about big data: State-run ledgers would give near-complete insight into how money is being spent in a country. In fact, Agustin Carstens, general manager of the “central bank of central banks,” the Bank for International Settlements, said:
“We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today.” With CBDCs, that would be possible, he noted.
That’s quite dystopian for anyone who thinks there ought to be a measure of financial privacy – the same privacy afforded today by physical cash. Further, because CBDCs are mostly just research projects at this stage, they invite a high degree of skepticism and conspiracy theories.
Namely, people are worried “Govcoins” could become tools for coercion or censorship.
"Should people be encouraged to eat the foods decided best for them, such as a plant or insect-based diet? CBDCs could do the trick. Should people be limited in how much they can spend per week on carbon-intensive purchases? CBDCs could help with that too,” N.S. Lyons, author of The Upheaval Substack, wrote last week in conservative-leaning digital mag City Journal.
It shouldn’t be controversial to say that governments want insight and oversight over monetary flows. They enact policies that degrade privacy and set limits around how money can be spent; often in service of the noble aim of combating terrorist financing and money laundering.
Lyons’ concerns are certainly, technically possible with CBDCs. In fact, Rohan Grey, assistant professor at Willamette University, said it’s already an established trend with some types of government-issued digital money. In the U.S., for instance, food welfare programs like Electronic Benefit Transfer (EBT) set barriers around what can be purchased as well as time-limits within which the benefit must be spent.
“I could certainly imagine a CBDC enhancing individual choice and wellbeing, etc., but probably only if designed with that in mind. Likewise, it’s not hard to imagine a CBDC being abused in some jurisdictions,” Matt Homer, executive in residence at Nyca Partners and former executive deputy superintendent at New York State Department of Financial Services, told me over Telegram.
The issue is magnified if CBDCs become generally accepted, widely adopted tender. Although sometimes presented as a form of greenbacks – which allows Alice to give Bob a quarter without an intermediary, ensuring both parties’ privacy and autonomy – a CBDC might end up looking more like company scrip.
Governments are legal monopolies, and letting them determine how public money is spent – which markets are kosher, who or what is off limits – would essentially turn the U.S. into a company town that stretches coast to coast.
However, there’s a strong case to be made that CBDCs should come with the same established guarantees of cash. They could be reasonably private and flow through an economy without intermediation – potentially into illegal markets, like cash.
Spending money is essentially disseminating speech and a form of association. This is the lesson from Citizens United v. Federal Election Commission. As such, civil rights advocates should fight for the same rights guaranteed by the First Amendment to apply to state-operated monetary rails.
“These are new First Amendment waters we’re sailing in,” Benjamin Barr, a lawyer at Barr & Klein PLLC specializing in free speech rights, told CoinDesk over email. It isn’t necessarily an easy fight, he noted. For decades, privacy advocates have fought to scale back or dismantle the Bank Secrecy Act and other anti-money laundering and terrorist financing rules, which establish broad mandates to surveil even everyday citizens nominally to prevent crime, on privacy grounds and have failed.
“Government will always have some designated ‘governmental interest’ behind a regulatory oversight CBDC program – fighting tax evasion, ensuring the efficiency of Medicaid/Medicare by ensuring healthy eating, fighting crime, the war on terror … the list goes on and on,” Barr said.
So any “challenge or restriction” placed on a CBDC would need to weigh the speech interests of the “transaction as compared to the importance of the government interest at hand,” he added.
Though we may never get to the point where CBDCs become tools to foster certain behaviors or quash industries or interests that supposedly stand against the public interest.
“I'm skeptical about using CBDC as a spending control instrument, not just because I think it might undermine its attractiveness, and may even create unintended opposition,” John Kiff, a former senior financial sector expert at the International Monetary Fund, wrote in an email. He added that such restricted use of CBDCs would hamper fungibility, “and for me fungibility is a core CBDC characteristic.”
In some sense, if done right, CBDCs would be an even greater tool for freedom and a boon for civil liberties.
Today, the digitized versions of cash you’re used to dealing with aren’t actually U.S. dollars, but liabilities of private companies that correspond to the value of a dollar – it’s skeuomorphic! Banks, credit providers and money-processors track their dollar-denominated liabilities on centralized ledgers.
Even “peer-to-peer” payments providers like Cash App are intermediaries! But there are ways to design systems that reduce centralization. Blockchains typically distribute this notational role across a host of computers, an imperfect system that provides user autonomy over their money but not necessarily privacy. Grey recently supported a bill for E-CASH, a blockchain-less, state-backed money.
As Homer said, a CBDC will function as it is made. What you could expect from a CBDC “depends on the design choices made for a CBDC, the accountability and governance features associated with it, and the extent to which the code/system is transparent to the public,” he said.
Just as the barriers to launching a CBDC are largely political rather than technological, so is the fight to guarantee that citizens can send their digital dollars as they wish. It’s just a matter of public will.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.