Treasury recommends exploring creation of a digital dollar | Hacker News Reader

Treasury recommends exploring creation of a digital dollar

apnews.com

34 points0thgen67 comments

Will laws be put in place ahead of this tech to prevent private industry, state and federal governments from abusing this system?

e.g.

- Auto-deducting money from someones wallet for infractions a minor crimes such as jaywalking detected by facial recognition?

- Locking someones wallet if they say something that upsets the government?

- Limiting access to the wallet for specific services if the persons social credit score is too low? this may also be in the works

- Protecting transactions from government agencies snooping without a warrant?

- Protecting transactions from private industries harvesting and machine learning behavior? This is already done with credit and debit cards. A centralized digital dollar could in theory track the same data for cash transactions. This data does exist but is harder to gather into a centralized database today.

Are there laws on the books today that would protect people from these and other use cases? I ask in good faith because I know that people will do what people can do. I believe this question is important. Implemented without proper protections can weaken faith in the system and the IRS stand to lose a lot of money.

These are features, not bugs.

Thanks for this laundry list of conspiracy, fear, uncertainty and doubt.

Central bank digital currencies differ from existing digital money available to the general public, such as the balance in a bank account, because they would be a direct liability of the Federal Reserve, not a commercial bank.

As far as the public is concerned, the only change will be faster transaction processing and new capabilities being offered by your bank --- such as transferring funds to friends/family from your banking web site/app in real time while sitting at the dinner table.

All purchases will continue to be made in good ole US dollars and all accounts will remain with your commercial bank of choice and subject to existing laws.

Basically, this will facilitate interbank transfers in order to provide a much needed update to the aging and slow ACH system which was designed for the paper check era. No banks will be killed in the creation of a CBDC.

> Central bank digital currencies differ from existing digital money available to the general public, such as the balance in a bank account, because they would be a direct liability of the Federal Reserve, not a commercial bank.

Semantics. People want to know their savings are guaranteed and they can't possibly be lost. The FDIC does just that. The public doesn't care if the ultimate grantor is the Fed or the Congress or the Senate.

And I think rightfully so because in the end the ultimate grantors securing Americans savings are always and in any event 3 entities:

1) the U.S. Army

2) taxpayers alive now

3) future generations of taxpayers.

This digital dollar or digital euro is something that nobody asked for and nobody wants. At least with crypto you can argue that they fill the role of online casino in disguise. Which isn't really productive but at least there are people who actually flock to it.

This digital dollar or digital euro is something that nobody asked for and nobody wants.

Digital dollars are what most people use every day --- credit and debit cards. When was the last time you paid with actual paper cash?

The only difference with a CBDC in place will be faster processing and lower costs due to realtime interbank transfers that are currently only available from 8AM until 5 PM on weekdays --- weekends and holidays excluded.

When was the last time you paid with actual paper cash?

I almost exclusively use cash. The exception is for the few things that local stores do not provide and for car insurance. I will remedy some of that soon e.g. Surety Bond. Even then I can still use cash to pay a local transport vendor to drive into a bigger town a few hours away and pick things up for me.

You are the exception rather than the rule. But the good news is, you won't be affected at all.

No one is proposing to eliminate the use of physical cash. Nothing about a CBDC requires cash to be eliminated. Any claims to the contrary are pure FUD.

CBDC may feel the same to the end user. But it is fundamentally different in terms of what it represents. The possibility of a surveillance police state should scare anyone with a brain.

Accounting for economic units is evident as far back as the Akkadian empire 5,000 years ago. Double-entry bookkeeping, central banking, ACH, SWIFT, etc. are iterations on a theme. CBDCs represent an incremental shift away from batch processing toward real-time messaging.

The current paradigm of universally KYC'd accounts, easily surveilled ACH, and a government-run interbank FedWire service already offer complete transparency to law enforcement and the treasury department.

True to some extent. But digital money brings it to a whole new level. Now they can shut down accounts. CBDC will allow a finer-grained control of all transactions. The ability to monitor every transaction you make.

Now they can shut down accounts.

You think your bank can't shut down your account now?

The ability to monitor every transaction you make.

You think your bank and CC company can't do this now?

The only way to avoid being "monitored" is to use cash. And a CBDC won't change this.

But it is fundamentally different in terms of what it represents.

It is fundamentally no different than what already exists --- just faster, more capable, more convenient and less costly.

If that was really the case why don't say JPMorgan and Wells Fargo enter in a partnership to provide such service?

If it's really cheaper, faster more convenient then they'd be enthusiastic about doing it because it would look good for their bottom line.

Money at the end of the day represents trust.

If the Fed is the most trustworthy entity then JPM and Wells Fargo are at #2 and #3. Nobody would care if the #2 and #3 institution exchange money between each other instantaneously and 24/7/365 but only settle their accounts at the Fed weekly or bi-weekly.

This thing for everybody to have an account with the Fed in the form of tokens (digital dollars and digital euros) is something really strange and that nobody has asked for. It is the project of some beurocrat which has seen a topic of interest among the population (crypto) and wants to look good to his superior or wants to claim that "I was at the helm of the team which developed the Digital Dollar".

If that was really the case why don't say JPMorgan and Wells Fargo enter in a partnership to provide such service?

Some banks do this --- but the utility is severely limited unless all banks and the Federal Reserve do this --- and at low cost. Enter CBDC.

This thing for everybody to have an account with the Fed in the form of tokens (digital dollars and digital euros) is something really strange and that nobody has asked for.

This thing for everybody to have an account with the Fed --- is not what is being proposed. Your bank account will stay right where it is now --- just with new features and capabilities.

No banks will be killed in the production of a CBDC. If it were otherwise, rest assured you would have heard about it from your bank by now.

That is a lot of faith and trust to put in the governing institutions. Even if this is not abused immediately, the temptation to do so somewhere down the line pretty much makes it inevitable. Cash may be imperfect and not technologically convenient, but it does offer the ability of third-party transactions to remain private.

Cash may be imperfect and not technologically convenient

How many times does this have to be repeated --- no one is proposing to eliminate cash.

Everything that a CBDC will do is already being done --- in a slower, less convenient and more costly manner. See ACH.

See SWIFT and various payment clearing systems in Europe. You don't need a CBDC to do this.

But a CBDC is certainly useful when the current fiat system has been blown up through hyper-inflation and there's no alternatives. It will usher in a new era of mass surveillance and control which for some inexplicable reason you seem happy to welcome in.

See SWIFT

SWIFT is an international transfer system that is outside the purview of a CBDC.

and various payment clearing systems in Europe.

Like the EU's SCT Inst?

   SCT Inst stands for SEPA Instant Credit Transfer scheme. It was introduced by 
   the Euro Retail Payments Board (ERPB) in order to enable rapid electronic 
   payments within the eurozone. In a nutshell, SCT Inst facilitates an instant 
   or near-instant clearing of a transaction between originator and beneficiary.

ERPB = Central Bank

Credit Transfer Scheme = Digital Currency

Put them together and what do you get --- effectively a CBDC system denominated in Euros instead of Dollars --- minus all the hyperbola, misinformation and doomsday prophecy attached to CBDC on this side of the pond.

In other words, Europe already has a CBDC which explains why their banking system is more advanced than in the US.

> the only change will be faster transaction processing and new capabilities being offered by your bank

Blockchained dollars would centralize the currently-decentralized payment system. Putting together an American's transaction history requires guessing where they have payment nexuses and then issuing subpoenaing. At each of those steps there are Constitutionally-challengable investigations and searches. CBDC would bring blockchain's centralization and eager evaluation to American finance, making searches easier and more comprehensive.

Canadian citizens have already had their bank accounts blocked for daring to protest against their government. [1] A German citizen had her bank accounts blocked for reporting from Donbas, presumably against what the German government regarded as being the truth. The same thing happened to her father (?!). [2]

So some of the things the OP is worrying about are already happening, no “conspiracy” about it.

[1] https://www.nationalreview.com/news/canada-unlocks-vast-majo...

[2] https://yournews.com/2022/06/15/2360919/german-govt-labels-j...

Canadian citizens have already had their bank accounts blocked

This only happened because of Canada's CBDC. Oh, wait ...

You make a sarcastic response here but the point the parent is making is that we have these grievous injustices happening within the confines of the current system. If we move to the CBDC era without legislation to protect the privacy and human rights of citizens, our governments will have far greater capabilities to erode those rights.

So allowing banks to transfer funds between each other and the Federal Reserve in real time will erode your rights?

Don't look now but they do all this already using ACH --- just more slowly and inefficiently.

Buckle up chicken little, your sky is going to fall because the economic case for it is overwhelming.

More like the political case for it.

By "protest" you mean terrorize a neighborhood of residents by subjecting them to continuous noise, fire, pollution, blockades, and physical harassment, right? What happened in Ottawa in Feb 2022 was way beyond the bounds of a reasonable protest.

Do Canadians or Germans have constitutionally dictated freedom of speech like Americans do?

Both Canadians and Germans are supposed to be living in a "rules-based world" which is now, supposedly, under attack. I had suspected that that "rules-based world" included the liberty/freedom of protesting against your government's policies, this is not a "freedom of speech" issue in the American sense.

The fox won't willingly give up the ability to be in charge of the henhouse. The only prayer one has to keep this from being abused constantly and on a widescale is for there to be a Constitutional amendment specifically addressing the issue and limiting the government's power in this area. Anything less will be subject to change and weakening by Congress and the various state legislatures.

Unfortunately, the country is far too fractured to come together in the required numbers to pass such an amendment. Once one "side" comes out in support, the other will reflexively come out against it. The only exception is if they both have agreed on how to neuter it into being useless for protecting the people.

There is no new potential for abuse here. All the much feared and ballyhooed capabilities already exist.

The process of denying someone access to their account in a bank will follow the existing trajectory.

A lot of people can manage to live their life using cash today and no one can stop them from using cash. This has a few bugs, but is overwhelmingly a feature.

Good for them. No one is trying to stop anyone from using cash. But the 19th century doesn't work for everyone.

You're staring at a story that is doing exactly that. You really think they'll have cash within 10 years of implementing this?

For convenience, people use digital money --- credit and debit cards.

For privacy, they use cash.

A CBDC won't change any of this.

> The fox won't willingly give up the ability to be in charge of the henhouse.

Shepherds laugh at the suggestion of loosening control of their sheep.

An amendment won't matter if a SCOTUS willing to legislate from the bench disagrees with it.

I think controllable currency is strongly in the interests of both corporate and government bodies for all these reasons. There's no counteracting force here representing the interest of the citizens and users. This is why it's inevitable.

The counteracting force is Bitcoin, Ethereum, Monero, Zcash, Tornado Cash, etc. Wake up.

Another counteracting force is people rising up against a CBDC. First, voting against any elected official that wants it. Second, by refusing to use it.

Retailers are already not thrilled handling paper money. If government pressures them to drop it, and the digital currency has no fees they need to eat, paper will be gone quickly. Voters have minimal voice compared to corporate lobbies.

It would be possible to open your own store then, to sell goods to people for cash. It'll cost more to not be tracked by the gov, but the incremental cost buys you privacy.

It's one way to fight back. This could also spawn middle men, who will trade in the digital currency and sell for cash, thereby avoiding surveillance. But if there is a hill to die on, this is it.

I think the only way to ensure these protections is that the digital currency has the ability to do 3rd party transactions through decentralized payments. Even a constitutional amendment is not enough to protect the consumer. The information made available through digital transactions is likely to be abused in some manner.

>Will laws be put in place ahead of this tech to prevent private industry, state and federal governments from abusing this system?

Laws won't stop them. See, for example, the laws preventing the ATF from creating digital databases of gun ownership records and the multiple instances of them violating this law without consequence.

A consumer-accessible digital dollar that works the way the article describes—with consumers and businesses holding accounts directly at the Federal Reserve—will amount to a nationalization of much of the consumer and commercial banking industries.

What business could possibly justify keeping a bank account when bank accounts are insured only to $250,000, and digital dollars are backed by the federal government to an unlimited degree?

What consumer will keep their bank accounts open, paying monthly maintenance fees and high transaction fees, when a free or low-cost option is available instead?

If the Fed’s digital dollar is actually worth using, businesses and consumers will withdraw their money from bank accounts en masse to move that money into cheaper and safer federal reserve accounts.

In other words, the introduction of a Federal Reserve digital dollar will result in a massive bank run the likes of which are almost unimaginable, simultaneously across the entire sector. Even if a substantial number of bank customers initially choose not to move their money, enough will choose to do so to make the operation of many (if not most) banks economically unviable. More than one bank will fail, which will cause real pain felt by ordinary people. The banks that don’t fail will effectively transfer much of their business over to the Federal Reserve.

Janet Yellen’s justification for this initiative is that payments today are too expensive. She may be right.

Who here, though, thinks that the solution to that pricing problem is a disorderly nationalization of the United States banking system, as well as that of much of the world, by the United States government?

Who thinks that the risks of a disorderly restructuring of the entire banking sector are worth it? Is there not some other way to achieve the same goals?

Counterpoint is that banks are predatory on consumers. i If their profitability relies on fees extracted from depositors for the privilege of letting them buy and sell, then they should not exist.

To demonize a whole industry like that is an unfair statement. Perhaps predatory in certain instances, but no more than any other industry. But to endorse a wholesale dismantling is irresponsible.

Well no because this is banks, so some amount more than other industries. It totally depends on their rates, how much they deserve to be demonized. Like in Chile they exponentiate their borrowing costs to the 18th power onto their debtors.

So let me explain: if you borrow at 10%, and double the interest, what do you get? Well the critical thing is time, patience, so doubling the interest means allowing half the time to pay back. So in fact the interest is 1.1, not .1, bankers should never add one or subtract one. You take that 1.1 and you square it, that's double the interest, get 1.21. Just as like, the banks take 1.01 international rates and exponentiate them to the 18th power to get 1.2 percent rates, what the market will bear...sort of, haven't borne it very happily recently. Lots of violence.

I'm sorry no. Banking provides a lot of services beyond accounts.

The last thing we need is government deciding which business gets loans.

They'll soon be analyzing your social media before loaning you anything.

Has there been any indication of the federal reserve replacing loans? This looks to replace checking and savings accounts.

How would banks make loans if not for taking deposits?

Much as they do now: by grouping loans by creditworthiness and selling them as bundles to investors.

This is a revolutionary sentiment that may be felt by some people— but you would not expect the United States Treasury and the Federal Reserve embrace these ideas.

If you believe that the banking industry is predatory, you shouldn’t hope for a disruption like this. The US banking industry is among the most competitive in the world, with thousands of institutions competing for your business. If you don’t like the fees charged by the big banks, you can find a credit union or community bank that will give you a better deal. If a digital dollar is released, it is these smaller institutions that will be most affected—along with consumer choice.

If the U.S. Treasury and the Federal Reserve intend to undertake a revolutionary restructuring of the U.S. banking sector, they should do so in an orderly fashion, engaging in a democratic process with full disclosure of the implications of their policies.

I've had an idea kicking around in my head for a while, tell me where I've gone wrong:

They introduce a digital dollar, at 1:1 with the regular dollar, but then have it float as an independent currency. Freely tradable against the regular dollar or anything else.

Why do this? Because it seems to me that there are already two economies. The things that ordinary folks trade in, and the things that large businesses, rich people, and speculators trade in.

Giving them their own currencies might help to insulate normal people somewhat from having the financial engineers crashing their economy. They'd crash the "rich people" economy instead, there would be knock-on effects but hopefully minimized.

So, the old dollar would be legal tender for salaries, rent, food, clothing, all retail goods essentially.

The digital dollar would be legal tender for commodities trading, share trading, crypto trading, swaps, company acquisitions, government contracts, and so on.

Yes, companies that buy things from the second category and sell in the first would have extra currency risk, but that's not unusual in business.

The big question would be in which category to put housing, given that for some it's an investment and for others a home. I'm tempted to say both currencies could be legal tender for that, but open to other ideas.

I'm not an economist, but does this make any sense at all?

No because of arbitration. Variations between the two currencies can be exploited for profit, so in the end the two are going to be linked, even if at a different ratio than 1:1. The shocks from one will be felt in the other one.

> does this make any sense at all?

No. You've just introduced transaction costs. To make it a separate currency, you'd have to have zero assured convertibility between the two. At that point, the whole thing would be as useless as plain vanilla crypto.

"exploring". Yah, right. It's been in the works for some time as 100% will do (attempt, I hope...), they are just warming people up for it.

I've been consluting a few mid size companies regarding CBDC and their usage in trading. The approach CDBC will take for business as an Exporter use case is similar to any contract that runs on eth.

1) Importer and Exporter settle on a price for a item 2) Importer "deposits(locks in)" total or % value of goods into a contract via CBDC through banking or a guarantee(AKA Amazon) entity 3) Exporter is guranteed funds, exporter sends the goods 4) Importer receives the goods, funds gets released(provided all contract terms are fulfilled) to the exporter immediatly.

This is good use for CDBC in trading. There is no Letter of Credit, Drafts etc that eat up a % of profit and time for both the importer and exporter.

I just wish it will be something like GNU Taler[0], that may actually improve consumer privacy, instead of getting rid of the last bits of it.

[0] https://taler-systems.com/en/digital-currency.html

It's like a hot potato that they like to display once in a while.

Might as well wait for the "exploring recommendation" to produce a research report.

I once thought of the brilliant idea: The US should switch the dollar to blockchain. Then it could eliminate all taxes and replace it with a surcharge on every transaction. Then I looked at GDP ($24 trillion) versus the Federal budget ($3 trillion although spending is twice that at $6 trillion.) That surcharge would have to be 25% to cover all expenditures!

Isn’t that a Value Added Tax?

Yes, which is also a regressive tax.

That's actually not a bad idea. I like the way you think!

It's a great deal if your federal tax burden (income+SS+medicare) is greater than 25%, which is true for the middle class and high income earners.

Those are the groups with the least political power, though. Lower income and the poor are protected by politicians who want to be progressive and make the rich pay their "fair share", and the very wealthy whose income is largely limited to capital gains taxes have their own political power via the fundraising / lobbying / donation networks.

Different transactions get different taxes right now

Not necessarily "new" news but an update

How would a USD CBDC interact with Fednow? My understanding is that Fednow will provide a way for fast interbank transactions with instant settlement because the accounts will be held directly at the Fed, by commercial financial institutions, on behalf of consumers. Rather than the current ACH system where banks settle between each other after several days via the clearing house.

If I have deposits in US CBDC, who will act as the equivalent of my credit card company or credit union? For example, who protects against fraud or reverses transactions? What would be the benefits of having CBDC deposits vs having a Fednow-enabled account at my credit union?

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