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North Carolina joins FL, SD against digital dollar as states becomes key CBDC battleground
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(Kitco News) -
North Carolina's House of Representatives voted unanimously to ban the state's agencies and institutions from accepting any payments in central bank digital currency (CBDC) on Wednesday. With this action, the state joins Florida and South Dakota in opposition to a digital dollar as states’ Universal Commercial Code legislation emerges as a key battleground in the fight over the future of the greenback.
North Carolina Representatives voted 118-0 in favor of the second reading of the state bill, which is designed to prevent any state entity from accepting a Federal Reserve-issued digital currency. The bill also bans the state from participating in any CBDC development activities, including tests and pilot programs such as Project Cedar, the New York Fed’s CBDC pilot which recently moved from the research to the development phase.
State-level CBDC pushback
Florida Governor Ron DeSantis has also introduced a proposal to the Florida legislature that would limit the use of a digital dollar in the sunshine state. Desantis announced the proposal on March 20 while standing in front of a podium that read “Big Brother’s Digital Dollar.” He claimed that any U.S. CBDC would be a tool of surveillance and control.
“[A CBDC] provides the government with a direct view of all consumer activities,” said the Florida governor. “Any way they can get into society to exercise their agenda, they will do it. So, what the central bank digital currency is all about is surveilling Americans and controlling [the] behavior of Americans.”
Florida’s legislative proposal is even more far-reaching than the South Carolina bill, and it shows that individual states’ Uniform Commercial Code (UCC) legislation will be critical in determining the viability of the digital dollar project.
The proposal seeks to block any potential growth of the digital dollar by “Expressly prohibiting the use of a federally adopted Central Bank Digital Currency as money within Florida’s Uniform Commercial Code (UCC); instituting protections against a central global currency by prohibiting any CBDC issued by a foreign reserve or foreign sanctioned central bank; and calling on likeminded states to join Florida in adopting similar prohibitions within their respective Commercial Codes to fight back against this concept nationwide.”
The DeSantis proposal also cited concerns about the impact that a digital dollar would have on commercial banks, saying that it could “diminish the role of community banks and credit unions in our financial system as CBDC currency would be a direct liability of the Federal government, rather than of a chartered financial institution, shrinking market lending power.”
On March 9, South Dakota Governor Kristi Noem vetoed House Bill 1193, which aimed to amend her state’s Uniform Commercial Code to exclude digital assets like Bitcoin from the legal definition of money, while creating an exception for CBDCs.
“It was sold as an update to the guidelines of the UCC, backed by all our financial institutions, our banks,” Noem said in an interview with Tucker Carlson. “As we started reading through it, we saw the section of the bill that changed the definition of currency. And essentially what it did was pave the way for a government-led CBDC, and it also banned any other form of cryptocurrency, Bitcoin or digital currency that existed. So for me, it very clearly was a threat to our freedom.”
Noem said the same language was embedded in bills working their way through more than 20 other state legislatures. “I believe it’s to pave a way for the federal government to control our currency, and thus control people,” she said. “It should be alarming to people and it’s being sold as a UCC guidelines update.”
Federal government resistance to CBDCs
There is also mounting resistance to the digital dollar project at the federal level. Senator Ted Cruz (R-Texas), Ranking Member of the Senate Committee on Commerce, Science, and Transportation, re-introduced a bill on March 21 that would prohibit the Federal Reserve from developing a direct-to-consumer central bank digital currency, which he says could be used as a financial surveillance tool by the federal government.
The bill, which is cosponsored by Senators Braun (R-Ind.) and Grassley (R-Iowa), was crafted to “ensure the United States’ digital currency policy protects financial privacy, maintains the dollar’s dominance, and cultivates innovation,” the announcement from Cruz said.
“CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely,” Cruz wrote. “It is important to note that while the Fed does not, and should not, have the authority to offer retail bank accounts, it is already looking into what establishing a digital currency would look like.”
The announcement also highlighted the ongoing digital yuan trial in China, which “omits the benefits and protections of cash,” as an example of what needs to be avoided in the creation of a digital dollar.
“The federal government has no authority to unilaterally establish a central bank currency,” Cruz said while introducing the legislation. “This bill goes a long way in making sure big government doesn’t attempt to centralize or control cryptocurrency and instead, allows it to thrive in the United States. We should be empowering entrepreneurs, enabling innovation, and increasing individual freedom—not stifling it.”
The House of Representatives also has implacable opponents to a U.S. CBDC, including Tom Emmer (R-Minn.), who introduced legislation seeking to prevent the Federal Reserve from directly issuing a CBDC in February.
The bill, entitled ‘CBDC Anti-Surveillance State Act’, was crafted “to halt efforts of unelected bureaucrats in Washington, DC from stripping Americans of their right to financial privacy,” Emmer wrote.
In a tweet that accompanied his announcement, Emmer said “The bill does three things: 1. Prohibits the Fed from issuing a CBDC directly to anyone; 2. Bars the Fed from using a CBDC to implement monetary policy and control the economy; 3. Requires the Fed's CBDC projects to be transparent to Congress and the American people.”
In a follow-up tweet, Emmer said “Any digital version of the dollar must uphold our American values of privacy, individual sovereignty, and free market competitiveness. Anything less opens the door to the development of a dangerous surveillance tool.”
The Minnesota representative previously introduced similar legislation in January 2022, but it failed to pass before the midterm elections in November.
CBDCs on the international stage
On May 1, the Managing Director of the International Monetary Fund, Kristalina Georgieva, said she believes it’s only a matter of time before central bank digital currencies (CBDC) are rolled out around the world, including in the United States.
“The future has arrived,” Georgieva said. “Even in the U.S. where [CBDC] was for quite some time a topic of not great interest, now there is an engagement.”
Georgieva said the IMF believes CBDCs could have destabilizing effects depending on the type a country chooses to adopt.
“When we think about CBDCs […] what we are careful about, is the choice between wholesale and retail CBDCs,” she said. “We think that wholesale CBDCs can be put in place with fairly little space for undesirable surprises, whereas retail CBDCs, they completely transform the financial system in a way that we don't quite know what consequences it could bring.”
Retail CBDCs are digital currencies issued by central banks directly to citizens for everyday commercial and financial transactions, and are designed to replace the country’s conventional money supply in circulation.
Wholesale CBDCs would be limited to deposits and transactions between the central bank and commercial banks, as well as large-scale financial activities such as international trade and intra-bank settlements, but would not be used by the broader public.
Georgieva said regardless of the form they take, there is no doubt in her mind that CBDCs are the future, and the IMF has “rapidly increased” the number of staff that works on CBDCs and other forms of digital money as a result.
“We know that this is where we are headed,” she said. “It is not going to be reversed. Before the pandemic, we used to say the future is digital, and with the pandemic, the future has arrived.”
The IMF director pointed out that the organization surveys their membership on this topic, and that over 110 countries “are at some stage of developing CBDCs.” She added that the impact of central bank digital currencies on individual countries and the global economy will be profound.
“I can tell you that we would see a very significant transformation that comes from CBDCs,” she said.
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