CBDCs in US Elections: Hyper-Politicization?

The conversation around central bank digital currencies (CBDCs) has recently become politicized in the United States. Former President Donald Trump declared that he would not allow a digital dollar if reelected, calling it a “dangerous threat to freedom.” Florida’s Republican Governor Ron DeSantis preemptively banned CBDCs in his state, while the Democratic Biden Administration has been researching a government-issued digital dollar without taking any steps towards implementation.

Eswar Prasad, a trade policy professor at Cornell University, believes that the highly partisan atmosphere in the US has influenced the partisan overtones in the CBD debate. CBDCs have become more politicized in the US compared to other countries. David Primo, a political science professor at the University of Rochester, believes that it is not surprising that politicians like Trump are opposing CBDCs on the grounds of government overreach.

Privacy is a major concern when it comes to CBDCs, with some fearing that they can be used by governments to spy on citizens’ private transactions. China’s embrace of a state-issued digital currency has further fueled these concerns. Jennifer Lassiter, executive director at the Digital Dollar Project, argues that barring the US from CBDC exploration will not stop global deployment, and it would be a mistake for the US to withdraw from CBDC exploration and innovation.

While some of the fears raised by Trump and others may be exaggerated, there is a history of financial surveillance that could be amplified with the introduction of CBDCs. Prasad believes that the US is least eager to issue a CBDC among major economies. He also argues that decentralized cryptocurrencies like Bitcoin should gain more users if CBDCs are discredited or rejected.

Some believe that cryptocurrencies, stablecoins, and CBDCs can coexist and serve different purposes within the global financial ecosystem. Robust debate and public understanding of CBDCs are crucial, as they can bring more people into the crypto space and increase confidence in digital money.

The relationship between cryptocurrencies and CBDCs is still unclear, and they may be correlated in terms of adoption. New technologies and regulations can address privacy concerns related to CBDCs, and cryptography techniques can be used to preserve anonymity. Prasad believes that decentralized cryptocurrencies are unlikely to replace state-issued currency, as they are often backed by fiat currencies.

It remains to be seen how CBDCs will be discussed and addressed in the upcoming US presidential elections and European Union parliamentary elections. While CBDCs may face challenges, pilot programs are expected to be attempted in some countries in the next decade. The US has the opportunity to influence the development of international standards for digital money networks, including CBDCs, which could protect democratic values such as freedom of speech and the right to privacy.