Interviewer: Satoshi Nishihata

 

――Is there a high probability that countries will actually implement CBDCs? One motive for government authorities to consider their own CBDC is their wariness over the growing influence of CBDCs and private cryptocurrencies in other nations. Could there be a “domino effect” where one country rolls out a CBDC, and other countries rush to implement their own CBDC out of defensive efforts?

Mr. Anthony: More countries are likely to introduce central bank digital currencies, or CBDCs, as many have already staked large investments in time, money, and their reputation on the endeavor, but it has been unclear lately just how many countries will do so. A year or two ago, CBDCs seemed inevitable. Today, not so much. Central bankers, government officials, and the broader public have all come out in opposition to CBDCs over the past 12 months. Across the board, people recognize that CBDCs don’t appear to offer any unique benefit, but they do offer considerable risks to financial privacy, freedom, markets, and security.

The “domino effect” you describe is, I’d argue, the single greatest motivator at the moment for government interest in CBDCs. However, interestingly, the first domino in this series was not a country. Rather, it appears the first domino was actually Facebook (now Meta). I’ve documented this phenomenon a number of times, but data shows that interest in CBDCs really didn’t spike until the summer of 2019—the same summer that Facebook announced its intention to create a cryptocurrency. In fact, interest in CBDCs didn’t just spike, it skyrocketed. U.S. policymakers still cite Facebook’s plan as a cause for concern despite it never coming to fruition.

――Given the current domino effect, it seems it has become a self-objective rather than discussing the benefit of CBDCs fairly and objectively. How do you analyze this phenomenon?

Mr. Anthony: I’ve seen it time and time again where government officials say, “Look at what China is doing, or look at what Nigeria is doing or what England is doing.” And they see that as a flashing signpost that they need to catch up out of either envy or jealousy or fear. They need to catch up to be at that same place.

And I think that’s a fundamental mistake in policy crafting or policy design to frame it from that perspective. It’s helpful to get signals from other people to understand what’s going on in the world, but it doesn’t mean, by default, that you need to copy them. You shouldn’t want to copy someone just because they’ve committed a larger genocide than you or they’ve taken more slaves than you. Those are not things that you should want to beat them on. And we’re seeing that same thing here. But we can make it a little bit more tangible or a little bit more specific to CBDCs if we think about what the fear is of other countries leading. Part of it is they’re going to get more headlines for breaking the ground on this issue. But the deeper concern is that they’re going to become the dominant currency in most cases. That’s really the deeper concern.

And from there, we get to the heart of it, and we can really ask, “Why do people pick a currency? Why is there a dominant currency?” And it’s not because it’s digital or it has some technological backing. It’s because of the fundamental design behind it. The reason that the US dollar has been so successful is because of the private property protections, the rule of law, and the general freedoms that people are offered, and it has a network effect around it as well. Those types of things are worthy to go after, and I would encourage every country around the world to go after those things, trying to improve financial privacy and freedom in the economy that people can have because then they’ll want to be part of that system.

But if you introduce a CBDC, you actually undo some of those effects because you inadvertently ― or at least, hopefully, inadvertently ― reduce the amount of freedom people have. You reduce the amount of privacy people have. You reduce the amount of people that are going to be involved in your network. And while rushing ahead to break ground on this issue might get you into the headlines of different newspapers, I don’t think it’s going to spell success for an individual currency in the long run. And I think that’s something that all countries should approach this with, recognizing, yes, it’s good to pay attention to what’s happening in the world, but you shouldn’t follow somebody off of a cliff.

――Do you know of any authorities directly involved with the implementation of a CBDC?

Mr. Anthony: Yes. There have been many occasions in which the people creating CBDCs have openly said just how bad they are. For example, Augustín Carstens, BIS General Manager, has 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. The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.”

Likewise, Christine Lagarde, president of the European Central Bank, has said, “When we surveyed Europeans, the first concern that they had… was privacy. Privacy is first and foremost on their mind when we divvy up the digital euro. [But] there would not be complete anonymity as there is with [cash.]”

And Daleep Singh, former economic advisor to President Joe Biden, has said, “One of the efforts we made was to… push our government to launch a digital dollar, which I think is the single best step… because it would crowd out the ecosystem of crypto.”

While I have more quotes and sources that I can draw upon, the general theme remains the same. Those that are pushing for CBDCs largely see them as a tool to solidify government control over payments systems.

――We, too, are concerned that more and more countries are likely to introduce CBDCs. As you pointed out, a recent top economic adviser for President Joe Biden, Daleep Singh, said that Biden’s executive order which aimed to encourage U.S. regulation of digital assets was basically “trying to push our government to launch a digital dollar.” Could you elaborate on this point?

Mr. Anthony: Absolutely. Well, one of the things that we saw out of Daleep Singh’s comments that was so illuminating was, here he was working on the executive order, working amidst the push for a Central Bank Digital Currency or a CBDC. And he saw that as being the best way ― in his own words, he saw that as being the best way to crowd out cryptocurrencies and to kind of preserve the government’s control over money and to stomp out any competition. And when we think about that in the context of what we’re seeing other countries do as well, this makes a lot of sense as far as countries that have invested maybe too much in this endeavor, they’re suffering the sunk cost fallacy, and that they don’t want to just let it go.

A good example of that is really the experience in Nigeria, where amidst low adoption of their Central Bank Digital Currency, all of a sudden, in rapid form, the government decided to exchange all the banknotes, so taking all the cash off the streets. In fact, the Nigerian government created a cash shortage after CBDC adoption had been at just 0.5%. However, there, the government has been clear about its plans. Godwin Emefiele, governor of the Central Bank of Nigeria, openly said that the destination with a CBDC is a 100% cashless economy. And it suddenly became very clear that it didn’t seem to be a coincidence that all the cash was evaporating while they were pushing a CBDC.

And that example actually carries further in that they’ve been looking for new contractors to help revitalize the CBDC design that they have rather than recognize that the Nigerian people simply prefer to use cash, and we’ll probably prefer that for quite some time.

So there is a problem where there are governments that probably won’t want to let go of this idea. Whether it’s because they’ve put all their academic rigor into this and they need to have something to show for it or they just put all their money into this and they need to have something to show for it, you’re going to have some that will do anything to make it a reality.

On the other hand, though, I’ll say we do have some good news in that more countries are starting to see that this is not the latest, greatest idea anymore. If I recall correctly, both the Swedish government and the government in Kenya have both, in the last few months, came out and said that the case for CBDC is waning, that this fad is no longer what it once was, and they don’t see any pressing need for it at this time. So what once was characterized as inevitable is kind of drifting away and losing ground. However, there are a few countries where it’s still questionable what’s going to happen if pride gets in the way of dropping this.

――So Nigeria will be a very good example of the experiment for many countries.

Mr. Anthony: Yeah. Absolutely. I think it’s very much a cautionary tale of what can happen because they asked, “What can we do?” And they made one, but they never really stopped to ask, “What should we do?” And if you look at the Nigerian population, you see that this is a country where cash is still the dominant form of payment. Well, that just doesn’t make sense to introduce a digital currency for them.

――I see. Our understanding is the European Central Bank seems to have been very enthusiastic in introducing CBDCs, digital Euro, compared to other countries. Why do you think that ECB is so enthusiastic about implementing CBDCs?

Mr. Anthony: I think part of the reason that the ECB, or the European Central Bank, is so enthusiastic about it, is because they want to lead ahead on the world stage. They want to have that kind of number-one position. And this idea is so headline-worthy, it’s so newsworthy that it offers a little bit of that opportunity. What’s unfortunate is I don’t think that technology really plays the biggest role in establishing yourself on the world stage. It catches headlines, but it’s not really what changes the effect.

It’s why Nigeria didn’t switch. And I think also, there’s a concern with there’s a level of control that it offers that the ECB would then be able to have over all the member countries. And you already have a great deal of authority with the European Central Bank and the Euro system. However, this would kind of ramp that up to a new level, especially with the frequent terrorist attacks that we’ve seen littered across the European Union. It could be very well that the European Central Bank sees this as something that they can use to combat that, very much like how in the United States, the USA Patriot Act was enacted in response to the September 11th attacks. And buried within that was an expansion of financial surveillance.

So it could be a mix of the two, that they want to try to grab headlines and lead the charge on this, and also that they want to grab more control over the independent countries, as independent as they are. It’ll be very interesting to find out what exactly happens, though, because, in just a few months, the European Central Bank needs to make a decision. They had a period of time that ends ― I believe it’s this fall, and they’ll have to announce whether or not they’re going to move forward with the CBDC or not, the digital Euro. And it may very well turn out that they don’t, or they postpone it because we’ve started to see protests happen in Europe, specifically over this issue, which is a little unheard of until the opposition that has come up in the past year.

――In Japan, there are very few experts and media who oppose CBDCs. With regard to privacy in particular, there is almost no alarm about the abuse of power by the authorities. In order to enlighten Japanese people, we would like to dig into the threat of CBDCs.

Mr. Anthony: I’ll put one caveat to say that I’m not an expert in Japanese policy, so I can’t speak to the technical details of the Japanese legal system. But I can say that if the Japanese people want to look at this and see something that’s a red flag right from the start is really in asking the difference between, “Is this something that the government could do?” And, “Is this something that the government should do?”

And across the many reasons that proponents try to say that a Central Bank Digital Currency, or CBDC, is benign or innocuous or maybe even to the benefit of people, if you actually pick at those and start to investigate what these claims are, they just don’t stand up to scrutiny. We don’t see this technology offering a better financial inclusion or faster payments compared to what already exists and any of the other benefits that people try to cite.

And then we start to say, “Okay. Well, why do government authorities still want to do this?” And you can either get to two fundamental answers, and it’s either just bureaucratic waste, where they’re trying to build up the government, because that’s what governments tend to do when they’re left to their own devices, or it’s about controlling people and controlling their finances. The benefits that are on the table are really just for federal authorities. They’re not for the people on the street. And I think it’s a good thing, ultimately, if people don’t have reason to be alarmed right from the gate because that means we have a pretty free society where people don’t have to be constantly questioning things. However, this is something that marks a very fundamental shift in the way money works, both here in the United States and over in Japan as well. Without having actual benefits for the people, it just doesn’t make sense, regardless of what country you’re in. And until authorities can provide that type of benefit that’s actually tangible and actually real, I think people should be very skeptical of what’s going on here.

――Also, those in Japan who argue for the implementation of a CBDC often refer to China’s digital yuan as a justification for their claim. They say it is a “necessary evil” to avoid the worst-case scenario of China getting a hold of both currency and transactional data. What are your thoughts on this?

Mr. Anthony: Again, I’m afraid I’m not familiar enough with Japan’s legal system to give a substantial answer here. However, I’ll say that policymakers should be extremely careful whenever they consider necessary evils. Simply, there are often cases where these evils are not necessary in the first place. Although some countries have pushed forward with CBDCs, it’s unlikely that a CBDC will be enough to sway people concerned about human rights abuses, volatile inflation, regime instability, or small networks. Rather than try to fight fire with fire, countries concerned about the rise of CBDCs should seek to achieve the opposite: an open and free economy that removes unnecessary restrictions.

――We’d like to ask you about the traceability of a CBDC. As long as the purpose of implementing CBDC includes “prevention of illegal transactions and money laundering,” we think a CBDC’s technological infrastructure would make it possible for governments to monitor individuals’ transactions. They will most likely limit this power on paper, as to prevent abuse of government overreach, but could it gradually turn into an Orwellian operation? If so, how do you imagine the CBDC will be used?

Mr. Anthony: Although I can’t speak for the legal system in every country, a CBDC would spell doom for what little financial privacy is left in the United States. Laws like the Bank Secrecy Act and Supreme Court cases like U.S. v. Miller have largely meant that any information shared with a bank or other financial institution can be seized by the government without a warrant. Unfortunately, surveys have found that most Americans are unaware that the law works this way.

As dismal as this image may appear and as much as reform is needed, there is still a sort of “air gap” that protects people’s privacy. The government must request the records it seeks and go through some hoops to acquire the information. A CBDC would fundamentally change the current system because the government would have information regarding individual financial transactions by default.

One could certainly argue that limits on paper could be established to prevent the abuse of government overreach. However, history suggests otherwise. Since 1970, Americans have largely only seen the government erode their financial privacy. Laws like the Bank Secrecy Act, Annunzio-Wylie Anti–Money Laundering Act, Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act and others have consistently increased financial surveillance over this time. So even if a CBDC is limited at first, its capabilities are likely to be too tempting for policymakers to resist for long.

――As you pointed out that a CBDC would spell doom for what little financial privacy is left in the United States. Could you give us any cases that have come to light regarding the authority’s excessive monitoring or control using financial information?

Mr. Anthony: Well, I shouldn’t say a great example, an awful example that showcases this is, just in the past, just last year, it was revealed that millions of reports were taken of transactions by the Department of Homeland Security and Immigration Customs Enforcement here in the United States, tracking people who were sending money home across the border, so people sending money, say, from Texas to their family in Mexico.

There were millions of these reports taken, and they did it all without a warrant. Most Americans believe that ― and it’s unfortunate that they believe this because if you ask them, I think it’s about somewhere around 80% believe that authorities need a warrant to get their financial information. But the Supreme Court and Congress have effectively said otherwise, and that’s meant that those millions of reports were able to be taken with just subpoenas.

In another case, under the law, banks are forced to report to the government when people make certain transactions. It ends up being about, I believe, 26 million reports a year on Americans, just for essentially using their own money. And there’s this huge regime that exists, and most people just don’t know about it because the worst part about it all is the law maintains that these reports are confidential, so you never get to know that any of this is happening. So more than likely, people in the United States have had this report filed on them one time or another, but they would never know unless they were digging into this issue, or if they were reading your magazine and seeing where these ideas were being exposed.

――It’s an awful situation. This might be sort of a detailed question, but what do you think is the difference in difficulty between the two cases: the government is requesting information from a private company, and a government agency is requesting information from another government agency like a Central Bank?

Mr. Anthony: Very good question. In the case that we currently have, there’s still a sort of air gap of protection. It’s not ideal, but it is something. And it’s where government agencies need to reach out to the financial institution, to your bank, and meet with their legal counsel. And that legal counsel is going to make sure that everything is done appropriately, and everything is going to be kept up above board. And hopefully, even as bad as it is, there’s some sense of formality or some sense of respect for the individual customers that’s going on, even though they’re not allowed to know that this is going on.

Now, if you change that, if you bring that air gap and close it, if you bring that to an end, you have a very different situation where there’s no longer the formality of going through this process. It’s mostly just like you or I opening our emails. It would most likely be in the form of a database that they have access to, and they could pull the records from that.
And we see a little bit of this already, where the Financial Crimes Enforcement Network, also known as FinCEN, here in the United States supervises the financial surveillance that goes on.

And here at Cato, myself, Jennifer Schulp, and Norbert Michel have repeatedly asked for information as far as what’s the success of this program. Are you catching criminals? Are you actually stopping the bad guys when you collect all these records? And they can’t tell us. And it’s not because it’s confidential. They can’t tell us because they don’t know. They know that law enforcement from tons of different agencies are going into the database and taking the information out, but they don’t actually know what they do with it. And this already gives us a hint, a little bit, about how you make this treasure trove of data, this pile of data, and then it’s just a free for all for people to pull from when they want to rather than, at least, that limited air gap that we have right now.

――Is it possible for countries to increase the tax base by allowing government authorities to capture individual transactions in detail by introducing CBDCs?

Mr. Anthony: I can’t speak to this issue too much as I’m not an expert in tax policy. However, I can say that by increasing financial surveillance through the issuance of a CBDC, it is possible that countries could increase the taxes that they collect. However, it’s important here to be clear that there is a tradeoff whenever we talk about financial crime—whether it be money laundering, check fraud, or tax evasion. Increasing surveillance introduces new costs to the system that weigh down the economy. It could just as possibly result in less tax revenue if economic output falls due to these constraints.

――Some advocates propose a two-tier CBDC system. Under this system, the transaction information would be held by the authorities, but the personal information would be held by the private banks, just like our current bank accounts. And the economic activities of the individual could not be monitored without matching the two data. Even under this system, as you pointed out privacy would be at risk. Could you explain in detail about this?

Mr. Anthony: So, while not as bad as maybe a direct system, when you have the banks act as an intermediary in this system, in a CBDC system, you still have a worse-off condition for privacy because the federal authorities, at the very least, are collecting kind of one half of the transaction, and you still have that whole pile there that’s existing.

Now, this gets a little bit more precarious when you look at it because then you start to need to consider it within the context of larger financial surveillance policy. And that shows us that this is kind of a middle ground to where they would like to be and very much be the case based on past financial history that it would expand and end up being, “Well, they already have this half of the transaction. Let’s give them access to the full transaction as well.” Or you get it in a piecemeal step. And it’s because you already build the infrastructure to have the CBDC there that by just having an intermediated model, you’re very much opening the door to the retail or direct model over time.

And we kind of already have a hint about this, where the intermediated model has been kind of offered as kind of a concession or a bone thrown so that banks feel like they’re not totally kicked out of the process. And it could just as easily be the case that it’s slightly modified, slightly changed to just move it forward anyway. And in that same kind of idea, I’ll just mention briefly that I have similar concerns about a wholesale model because we already have ― at least most central banks around the world already have very modernized wholesale systems that to introduce CBDC now in that context only really makes sense if you want to test it to introduce at the intermediated or at the retail level.

――I have heard that there is some discussion about tying CBDCs to citizen IDs. What do you think of this idea?

Mr. Anthony: I am very much horrified by that idea, I’ll say. It very much worries me, the idea of having that in place, because it really gives you no other option, and it really restricts people beyond their means. That’s one of the troubles that I identified with the argument that a CBDC will help financial inclusion, whereas in the United States, two of the top three reasons for not having a bank account are because you don’t trust the banks, or you have privacy concerns with sharing your information with the banks. And if nothing else, I think of those two groups of people that if you were to make it so that it’s tied directly to your ID, it’s something that they probably would never want to use, and I don’t think that they should be forced to use it.

And that’s kind of where you get in the very end of it, is by tying it to an individual ID, say it’s a Social Security number or something like that. You’re almost forcing people into that system. It may not be drastic at first. It may just be an auxiliary option, but unfortunately, we need to have policies built that can survive not just the best of leaders but also the worst of leaders. And it’s a very powerful tool to give the federal government what is essentially a bank account for every citizen in the hands of the federal organization or the federal government.

――From a historical perspective, can you give us a little more about the nature of the authorities’ attempts to increase financial surveillance without informing citizens?

Mr. Anthony: So the 1970s ― is probably the best place I would want to start, where in the United States the Bank Secrecy Act was created as a means to start making banks keep records on people. Now, that might feel like a lifetime ago, and very much is a lifetime ago, but since then, in the 50 years or so that have developed, it’s really been one bill after another passed through Congress. They’ve been slowly expanding this, being the case of giving new powers to the Department of the Treasury, creating FinCEN, requiring banks to know their customer, and so on and so forth. It’s been this constant expansion. And the one good part about that is a lot of it has been upfront. It’s not the easiest process to understand. Politics is its own language, but at least it was through a somewhat formal process.

However, if we go back to the 1970s when the Bank Secrecy Act was created, there was another piece of that story that often gets missed where there was a requirement set to track transactions of $10,000, and it was never adjusted for inflation. So it’s been slowly increasing surveillance without any accountability, without any type of notice for the past 50 years. What was $10,000 in 1972 or so is now closer to $80,000. And it’s a very different condition to think about, and yet almost no one on the street knows that this is taking place. No one knows that this surveillance has been increasing because if you look at it on paper, it looks like nothing’s changed. It stayed the same number. It looks like it’s all the same, but when we talk about adjusting for inflation, you see, “Oh, no. This is a very different number that we’re talking about.” This number should have been increased every year or maybe every two years. Instead, it just stayed the same. And that’s part of why there’s tens of millions of reports filed on Americans every year, because they go over this threshold because $10,000 has become more and more normal for a payment amount.

――I wonder if there were any good reasons or sentiments in the 1970s that they wanted to implement this kind of bill.

Mr. Anthony: At the time, Congress was worried about money that was put in offshore accounts, like in a Swedish bank or something like that. And you see that it’s not the best defense because they said they were worried about that. And you think, “Okay. Well, call them up and ask for it.” And they said that it was hard, and it took time. Not that it was impossible, but that it took time to do that.

And so they set up these reporting requirements and gave the treasury new powers to establish the reporting requirements. And I think I’m willing to be understanding in the first few years to say maybe inflation was left off as an oversight. That could have been a mistake because this has happened in other areas where they don’t have any inflation adjustment. Where my patience wears thin or becomes absent is when we see time after time people have spoken up about this issue. We’ve seen people, myself here at Cato, Aaron Klein at the Brookings Institute, and people at Think Tanks far and wide have called attention to this being an issue, and for many years at that. And that’s where you have to look at it and say, “Why is this still going on?” And at this point, the very real factor seems to be, it’s increased financial surveillance so much that they prefer it that way.

――I understand. This may sound extreme, but in Nazi Germany, registration to the personal punch card which was used to capture the Jewish people, was done under the guise of a tax survey. Is it possible that such a system could be introduced with a different agenda behind the scenes, or subsequently used with a different intention when the nature of the regime undergoes an unexpected change?

Mr. Anthony: While it is an extreme example, I’m sorry to say it’s not far off. It’s not totally out of line to recognize the parallels there. And I think that really boils down to the point that good policy needs to survive the best and worst of leaders. And this is something that offers so much power, so much insight into the personal lives of individuals that in the hands of the worst of leaders, it’s almost unfathomable what could be created out of it. While I hope nothing like that happens again, this very much causes real concerns that mass groups can be targeted.

A good example would really be just the ways that the financial system has been used to stop groups of people. Luckily, nothing on the scale of Nazi Germany, at least in recent years, but we’ve seen movements in terms of protesters being stopped in this way. And if a CBDC were to be introduced, then it would be stopped that much faster because there would be a direct line between the government and these individuals.

And when you look at how hostile politics has become in recent years, to me, that’s a flashing light. We don’t want to give more power to the federal government. We don’t want to give more power to the hands of these individuals. If they can barely get along with each other in congressional buildings and in the White House, just imagine when their attention turns to you because you’re protesting something you believe in. And I very much worry that having that kind of accounting system of individuals could get out of hand very quickly in the worst of circumstances.

――I’m afraid we are heading toward such a horrible situation. The next several questions are about the programmability of the CBDCs. Some claim that monetary policy would become more powerful if interest rates were directly linked to what’s in an individual’s digital wallet. How do you evaluate this idea?

Mr. Anthony: A CBDC would likely increase the power of monetary policy, but most CBDC proponents fail to recognize this power would come at great cost. Consider the idea of negative interest rates. Where positive interest rates are used to spur saving, negative interest rates could be used to spur spending. The idea is that by making people lose money, they are likely to go out and spend it. In turn, that spending could help to pull an economy away from a recession. A few problems arise out of this proposal.

First, the success of a negative interest rate policy hinges on restricting people’s ability to seek monetary alternatives. For example, if someone wakes up to find that they are losing money, they may decide to trade their CBDC for foreign currency, cryptocurrency, or some other alternative store of value. Doing so, however, decreases the number of people using the CBDC and therefore the effectiveness of the negative interest rate policy.

Second, the Federal Reserve has a long history of poor performance. Whether it was the 1970s or the 2010s, it is no secret that the Fed has long struggled to reach its policy targets. It’s quite possible that directly effecting individuals like this could be disastrous if the wrong decisions are made. Where financial institutions currently act as a sort of buffer between rate change decisions and the broader public, a CBDC would result in the public being directly affected by the Federal Reserve.

――If people seek monetary alternatives to escape negative interest, it would be against the government’s desire to keep its currency powerful. Do you think that CBDC proponents have considered this possible problem?

Mr. Anthony: I think some proponents have considered it in detail where they’ve openly said ― or openly acknowledged, I should say ― that there need to be restrictions in place. I think we’ve seen governments do that in practice already, where, prime examples being in China when the cryptocurrency bans came up, and I believe that was the summer of 2021, and just recently in Nigeria where cash was taken off the streets.

I think it’s something that people recognize even when they promote these factors. It’s just they tend to not say them as openly and tend not to disclose that that is the reality because it very much is the truth that these policies are only successful if everyone uses the CBDC and nothing else. And even there, cash becomes a very real alternative to the CBDC. Things like gold or silver can become very real alternatives, and cryptocurrency is just the same. And all of those would likely be under fire or, at the very least, under a watchful eye to make sure if, say, negative interest rate implementation is not effective, they might turn to look at the adoption rates of those alternatives. And if they see that they’re correlated, then the next step is, well, these need to be taken off the table for the rates to work as they’re designed.

――Do you think it’s possible to, for example, set an expiration date for the money using the CBDC system?

Mr. Anthony: Absolutely. That is a great example of kind of a more basic form of a negative interest rate. And one of the ways that we’ve actually seen that proposed was when people were talking about the stimulus checks that were given out during the COVID-19 pandemic. And here in the United States, there were people saying that, “Oh, if we only had a CBDC, all the stimulus could be given with expiration dates so that you have to spend it, quote-unquote, “within the pandemic” so you can’t hold on to it and so it does stimulate the economy.” And this is another example, though, of a point that I really can’t stress enough, is that robust policy has to be for the best and worst of leaders.

Where the best leader might say, “Okay, here’s harmless situation X, Y, and Z. We’re only going to do it there,” The worst of leaders, though, might open up the full alphabet of options, and it is something that could be established very easily. Another way to think about it is if you don’t have the CBDC itself with an expiration date and if you don’t do negative interest rates, a third way that they could do it is also to have an automatic fine where they automatically penalize that person, say they were given $1,000 that was expiring by the end of the month. End of the month comes, it checks to see how much is left and penalizes them right on the spot for the difference. And in that sense, that’s like having an expiration date too. And I’m sure there’s a dozen other situations that people could think of because this nature of programmability really is only limited by our own creativity.

――Above all, if the Central Bank directly applies negative interest to individual accounts, it seems that the principles of capitalism itself will be damaged. Do you have any perspective on this issue fundamentally?

Mr. Anthony: Yeah. So on the idea of, well, damaging their reputation, right, I think it’s something that a lot of people haven’t really grappled with because the broader public, at least as it currently stands, doesn’t have a huge relationship with the Central Bank. A lot of people know that the Federal Reserve is this building in Washington DC, and they know it has something to do with money but not much else.

But when they start to see the money disappearing from their account, suddenly, they’re going to want to know, “Who is doing this? Who is taking money directly out of my account?” And I think maybe that would be somewhat good to have more people aware of central banking, but I don’t think that’s the attention that central bankers want to draw to themselves and especially when they start making the wrong decisions because it’s one thing if you somehow convince the broader public that, “We need to take your money away. We need to implement negative interest rates to stop this recession. We need to spur you to go out and spend. Trust us. We know what we’re doing.”

It’s another thing when they get it wrong. When the model isn’t appropriately tuned, it doesn’t include the right data, or it doesn’t factor in regional differences, the differences of people living in the city versus people living out in the country or one state versus another. And when you start getting to those very micro levels, the individual level, and you make those mistakes, that’s something that people don’t forget. They see that they had their money taken away. Maybe they’ll think of it like a tax. Maybe they’ll think of it like a penalty or a punishment. Either way, it’s a very negative experience, and they probably incurred it for no reason. And sadly, I think what’s likely to happen, given, at least in the United States, the Federal Reserve has not had a good track record over the past 110 years of its existence. It’s not horrible. It hasn’t put the US economy into a downward spiral, but when we actually check how it’s performed, it has not fulfilled its mandate, and it’s not succeeded by any means.

――As you pointed out that the Federal Reserve has a long history of poor performance, if the central bank directly affects individuals it could be disastrous. For many people, however, it may be difficult to assume what kind of situation will happen if a buffer of financial institutions is removed and Central Bank directly affects people to spur savings or to spur spending. Could you elaborate on this destructive impact?

Mr. Anthony: Yeah. So briefly, I’ll start from the perspective of when the Federal Reserve makes its rate decisions. Really, who’s experiencing those the most right now are the larger financial institutions. Those are the ones that really have the direct connection to the Fed. And everyone on the street is going to experience that when they later see the rates change a little bit on maybe a small loan or a business loan or their savings account. But if there are any rapid shocks that take place, they first hit the banks, and then the banks are able to kind of diffuse those across the market. And it’s like a shock absorber a little bit in your car. The problem that comes with a CBDC is you have that shock absorber in the car in between the road and the vehicle, and all of a sudden you’re getting rid of that, and you have just the people and the Fed. And if the Fed makes a rapid response that goes in the wrong direction, that goes directly to the people. And I encourage people to read this any chance I get. There’s a great article where it’s– and I’m not kidding, the title is Has The Fed Been A Failure? It’s by one of my colleagues, George Selgin, and also Larry White and Bill Lastrapes.

And this was ― if I recall correctly, I think it was in the Journal of Macroeconomics, and they evaluated econometrically how the Fed has lived up to its mission from 1913 to 2013. And you see quite plainly its performance has been pretty poor across that period. It really hasn’t been this panacea to monetary policy issues. It’s constantly had problems as they’ve tried to figure out things either too late or reacted in a way that was too large. And I think that’s something that many people have not had to deal with, those failures, directly because it’s been one step removed from individuals in the public.

But I think the public will have to grapple with that if a CBDC is introduced, and it can quite plainly be an experience like waking up, seeing the stock market is down and we might be headed towards a recession, and then you login to your payments app and you see, all of a sudden, in real time, your money is just evaporating because the government wants to kind of spur you or kick you into spending to hopefully turn the tide on the recession. And that’s something that can quickly create panic. It can create a worse situation as people flee to maybe if they put all their money into hard metals and never go back to cash at all. You create so many different situations. And in all of them, I think the most drastic thing to consider is that they weren’t really necessary. We’re not really getting any benefits despite these risks.

――I hope we can avoid that awful future. Since some people regard the programmability of CBDCs as a kind of conspiracy theory, could you tell us any specific cases or examples which indicate authorities’ intention to use CBDCs for control?

Mr. Anthony: So a few things that I would point out offhand is the good news is that CBDCs are so new that we don’t have many cases of people’s rights being violated yet with them just because they’re not in circulation, and they haven’t been used on a wide scale. We’ve seen bad decisions made around their rollouts, such as in Nigeria when cash was restricted or in China where cryptocurrencies were restricted. But we haven’t seen the direct impact yet because they are so new and still in that pilot phase. The bad news is that many people have written or spoken favorably of the concerns that we have or that I have. So when I often see people say that this is something like a conspiracy theory, I point them to where out of the People’s Bank of China, there were articles written about how a CBDC could be used to track individual transactions and the case study for programmability given was identifying somebody spending money late at night to try to identify illegal gambling.

And we’ve also seen other cases where people in governments elsewhere or government agencies or international agencies have spoken highly of the survivability and the controllability that a CBDC will offer in that it’ll offer absolute control and absolute visibility to the Central Bank a control and visibility that they do not have with cash itself. And so they market it as a very fundamental shift. And when we look at what that shift is, fundamentally, it’s one towards either politicians or central bankers having greater control over the economy.

――Sounds horrible. Do you think those studies which aim to complete CBDCs’ programmability are actually done and hidden from the public by the authorities?

Mr. Anthony: That’s a very good question. I think I would imagine that there is some degree of trepidation or cautiousness as far as speaking out about that. And I say that because in recent years, there’s been more opposition to CBDCs, and we’re starting to see central bankers and reports out of things like the IMF, the BIS, and everywhere else where they’re starting to acknowledge privacy concerns more. They’re starting to see them as unavoidable.

So I could see a situation where somebody might have written about it at one of these organizations or one of these central banks in the past and their supervisor said, “No. No. No. Let’s not dive into that. Let’s not open that can of worms.” And I think now we’re getting to a point where they really can’t ignore it anymore. It’s very possible that there’s more to it, but, I mean, I don’t want to speak to it too much or speak to it too much on just speculation.

――I understand. The next question is about programmability in the context of climate change. There is a movement to replace beef consumption with other sources of protein so in the context of the climate crisis. Do you think it’s technically possible to spur or curb the purchase of a specific food like beef?

Mr. Anthony: Yeah. Absolutely. Well, first, let me give a quick disclaimer. I’m not a climate expert, and I don’t follow the space too closely, so take everything specifically related to the climate with a grain of salt. But I’ll say in recent weeks, I have seen talks about people concerned about eating meat, specifically from eating beef, because cattle contribute so much to methane emissions. And you could very much see a situation like that where that’s trending in the news. And so here you try to stop people from eating beef or steaks or what have you, and you can try to curtail that, or whatever else comes up latest in the breaking science of what the leading concern is, they can make that be totally off-limits for people. And that’s a situation where you don’t have to worry about figuring it out on the ground with all the different shops in the area and sending that around. You have a way to identify it from afar by having this transaction information stored within the CBDC.

――Sounds like a horrible Sci-Fi movie.

Mr. Anthony: It really does. It’s one of the things that– I say this all the time. I dislike working on this subject, if for no other reason– or rather, the reason I dislike most about working on this subject is that it sounds like a dystopian, Sci-Fi movie. And then you dig in, and you see what the people who want to create it are actually saying. You see what people are writing about it, what proponents are saying about it, and how it would fit into the existing system, and it kind of takes you back, and you realize, “Wait, this is a problem. This is a real problem.”

――In recent years, some people strongly insist that central banks should contribute to the fight against climate change. So now, there is also an effort to ensure the companies and businesses that contribute to decarbonization have more access to financing. Do you think this could be leading to, for example, resources that are identified as having a high environmental impact will become more expensive, or restrictions will be imposed on an individual who is trading depending on the amount of CO2 emissions?

Mr. Anthony: I think it is quite likely that we will see those situations arise where we already currently have central banks involved in the climate discussion and in the climate debates. And I think if we give central banks this new unprecedented power, that they will become a sort of lightning rod for political attention, where members of the federal government will see them as nothing more than a tool, and an effective one at that. So we’ll get into a situation where, exactly as you described, members who want to restrict, say, carbon emissions, will look at the Fed and say, “We need you to create these controls.” Either collaborate on it or create legislation to force them to do it. One way or the other, they’re going to try to influence the Fed to do that. And we already see some examples of this when people are talking about how the Federal Reserve’s mandate is this ― technically tri mandate, but let’s focus on the dual mandate where one of them is looking at unemployment.

We see members of Congress say to the Fed that, “You’re killing people by not letting them have jobs.” Well, it’s not a stretch to go from that type of statement to, “You’re killing people by letting them invest in this climate-destroying technology,” quote-unquote. It’s very much not a far cry for that, and I think it’ll just depend which party is in power because you also run the risk that you could see ― so if you have the two camps in here of the climate activists and maybe the climate deniers, you could have the climate activists want to tax everyone for their, say, carbon use. Well, on the other side, they might react just as badly to say, “Well, we want to tax your use of solar power or electric vehicles or something out of retaliation.” And that’s where a broader, maybe, umbrella is that whenever you get politics in the mix, it becomes a little bit of a mess, and everyone suffers for it. And by having this much power at the Central Bank, you turn it into this lightning rod for political debates because every politician is going to want to grab hold of it and use it for their own mission, whether that’s for or against climate change.

――Also, in recent years, we’ve witnessed unimaginable censorship through Big Tech and the silencing of voices that counter the “mainstream” on topics such as vaccination and climate change. Could the CBDC ever be used as a means of unprecedented control?

Mr. Anthony: It is quite likely that the programmability of a CBDC would be captured by political interests. The independence of central banks is already under fire by politicians that wish to use them as a source of back door funding. However, a CBDC would greatly exacerbate the issue by opening up entirely new paths for political control.

One example that’s easy to imagine is with the idea of using taxes to curtail certain behaviors like alcohol or tobacco consumption. The programmability of a CBDC could open several new avenues for increased restrictions. For example, if someone gets charged with drinking and driving, they may be restricted from purchasing alcohol in the future. Or, perhaps if someone pays for parking on a night out in the city, they may not be allowed to purchase alcohol at clubs. The themes and variations here are endless, and all within the realm of possibility.

――Regarding the authority’s surveillance, we know that the authority froze its own citizens’ bank accounts in response to their speech of protest in Canada. And in China, there have been many cases where specific citizens were banned from using public transportation after their bank accounts were already frozen for possibly political reasons and the authority wanted to prevent the spread of their move. So do you think it’s possible that CBDCs could be used as a means of restricting the activity of individuals in the name of public safety or security?

Mr. Anthony: I think it is very possible. Unfortunately, one example is Jimmy Lai’s experience when he had been speaking out against China. And if I recall the title correctly, he was arrested under the national security law. And while he was in prison ― I think it was maybe six months after his arrest ― the Hong Kong police ended up freezing his personal finances and that of Apple Daily under the guise of this national security law. Now, he’s not alone, by any means, because we saw that happen to protesters in China. We’ve seen this happen to the protesters in Nigeria who were protesting the police force there. We’ve seen this happen in Russia with opposition to Vladimir Putin. We’ve seen this in the South Sudan and, like you said, we’ve seen this in Canada, where protesters or opposition rise up, and government authorities turn to the financial system as a tool to choke them off.

And again, it’s important to stress that the existing system needs to be repaired, and it needs to be reformed. However, a CBDC would not be that reform or repair. Rather, it would be moving in the worst direction possible by establishing greater powers, greater control, and greater surveillance so that authorities can just step in on a whim. They don’t need to coordinate with the banks. They don’t need to coordinate with a financial institution. They can just pull up your records and say, “We saw him there, we saw her there, or we saw these 200 people there. Here’s all the accounts. Let’s freeze those right now on the spot, and let’s watch for their next transaction because we’ll send police there to get them.”

――I see. Authorities can weaponize their financial tools.

Mr. Anthony: Yeah. And especially when you have situations like you mentioned earlier where if a CBDC is tied to your direct ID, to your citizenship, then it’s almost inescapable. And in a way, you’re cut off from society.

――Yeah. It’s very convenient for authoritarian regimes.

Mr. Anthony: And it’s also really good for them because you have this condition set up where it’s like an invisible tool because nowadays, in the age of social media, you have people tweeting pictures. Now, if police come, if the riot police come, you see people tweeting pictures of a police officer in what appears to be brutally attacking an innocent protester, or you can have it on the cover of a magazine, this scene of brutality, and people all agree that there’s a problem here. There’s a very real problem for authoritarian regimes.

Now, contrast that with what happens when your bank account is frozen. Either you go up to the convenience store or you go up to 7-Eleven and scan your card and you get denied. Or maybe you get a call from the bank, or maybe you open up your phone and you look and you see an error message. That doesn’t really play well on the front of a magazine or on Twitter or the like. It’s not as flashy in a way. And in that sense, this type of control can be abused– or is prone to abuse because it’s less likely to be seen by the broader public.

――I see. Do you think it’s possible for the authority to implement this kind of surveillance system in chaos like a disaster or epidemic or other terrorist incidents or social disorder?

Mr. Anthony: This is something that I worry about a great deal because we’ve seen governments respond very rapidly to past crises. And there’s the old running joke or running adage that there’s nothing more permanent than a temporary government program. And that’s because all it needs is that initial start to get the ball rolling, and then it stays around forever. And that’s part of why earlier, I said how I worry that some governments won’t be able to let go because they invested too much money or their reputation in the CBDC project.

Now, I also worry that if there’s another pandemic or recession or depression or something else, we could see– like when the Federal Reserve started dozens of programs in response to the COVID-19 pandemic, we could see that happen again and a CBDC be part of that. And then they say, “Well, this is only for the emergency. We’re only going to use it until the time wears off.” And then we have something stretched out where the pandemic never really ended; it just kind of faded away. We can have the same situation where they get to the end of it and say, “Well, let’s just keep it around. There’s no sense in taking it away. Let’s just keep it on the table.” And then it’s there for good, really.

――We can easily imagine that situation. It may happen.

Mr. Anthony: Yeah, I mean, especially when you think just how many facilities and programs were made in response to COVID-19. And I’ll say many people didn’t catch this, but during the initial drafting of the legislation in response to the pandemic, Congress did consider having a CBDC created. That was something that was kind of floated around in some of the legislative proposals. Luckily, it did not come through, but I think that’s something we still have to worry about.

――They may want to link the individual IDs to the IRS.

Mr. Anthony: And that’s another way that it would work as well. And that’s so important to flag because that’s what I mean by these programmability options are really just so limitless. It’s very worrisome. From a human rights perspective, it’s very worrisome. From an academic perspective, I’ll say it’ll be interesting to see, but I think it’s one of those things that even from an academic perspective, as interesting as it may be, again, it’s the difference between what could and should be done. And yes, they can do this.

――They can weaponize everything. Okay. The last question is about the ideology. Do you see any common ideology or philosophy among those people who are strongly advocating for the implementation of CBDCs?

Mr. Anthony: That’s a really good question and one that I haven’t really considered too strongly in the past. However, thinking about it for a moment, maybe not ideology, but there’s kind of a school of thought that is common among people who are in favor of Central Bank Digital Currencies, is one in having kind of an optimistic view of government.

I can’t help but be reminded of a quote that Congresswoman Rashida Tlaib said a few years ago, and she has been in favor of CBDCs a few times. While I’m butchering this, her larger point was, she said that “if the private sector doesn’t offer something that’s very good, that’s one thing, but that’s why we’re here. That’s why the government is here, to step in and do better.” And it’s this idea that the government can do just about anything. The government can fund just about anything. There are no constraints on it. It can spend as it needs, and we’ll just get the right people in charge to do the job. And I see that in a lot of places where some people will even be critical of CBDCs and say, “But we’ll still issue them. We will just have the right safeguards in place. We’ll make sure we have it written down that it can’t violate our privacy and it can’t be used to control the masses.”

And I’ll say there are times when I’m jealous of that viewpoint of being so optimistic because I see a very different picture when I look at history, though. When I see people who are advocating for greater government control and even believe that the government’s going to do what’s right, I look back at history, even just the cross-section of financial history, and I see ever-increasing control, ever-increasing surveillance, and ever-increasing restrictions on the freedoms of people. And I don’t see the same optimistic picture.

So the exact ideology that may be strung through here, I’m sure there are echoes of socialism that have inspired these ideas, but I’ll say in the broadest and in the kindest sense, it’s one of optimism for government control. And as much as I’d like to say that this is just another form of money, it’s not. It’s a very fundamental shift in the way our money and our economy will operate. And it’s something that seems to be profoundly negative, at least in my view. But I suppose they might just say that I have a pessimistic view in contrast to their optimism, but I think history, for better or worse, kind of confirms my viewing of it.

――I see. So socialism or communism, which are restricting individual freedoms is a common base.

Mr. Anthony: Yeah. Well, I’ll say more specifically, this doesn’t apply to all proponents, but China is a great example of how the communist system would inspire this thinking because you had private alternatives in the sense of Alipay and WeChat to the extent that they were air-gapped. And I think that was part of the inspiration as well of wanting to introduce CBDC in China, is that you had something so successful and you want to try to rope it in and get the arms around that.

――Do you think China will be successful after all, regarding implementing CBDCs?

Mr. Anthony: That’s a really good question, I think I would have said yes a year ago. I’m actually a little skeptical of what China is going to be able to achieve with its CBDC because there are two problems that I see right now with what China is doing, and it has to be taken with a grain of salt because we have limited information.

But the first problem is that they’ve been in a pilot phase for quite a while now. It’s been a couple of years of just trying to pilot the CBDC, granted it’s in a few cities now, and there’s a pretty large circulation in place. So I don’t mean to say pilot as in it’s operating in someone’s garage. It is a very serious endeavor, but it definitely raises an eyebrow that they have had such a slow kickoff for it. And as I caution that there’s not a lot of information, so it’s hard to gauge what’s going on, I also think that’s telling, though, that there’s not a lot of information being shared because I would think that China would want to– the Chinese government would want to be bragging openly about how it’s beating, say, the European system or the American system or the Japanese system, how it’s putting everyone to shame and it’s first place and all this.

But it really hasn’t shared a lot of information, which, again, is not totally unfounded for Chinese government policy, but this just seems a little strange at this point, and it makes me think that maybe Alipay and WeChat became so successful that people are seeing, “Well, we don’t have any reason to use the CBDC,” other than when they give out the lotteries, when they give money to people to try to spur its adoption. They’ll get that, and they’ll spend that at the store, but once it ends, they’re not going to refill their account because they don’t have much of a reason to. And we’re kind of at a point now where if China doesn’t figure out a way to inspire use, it’ll have to force use. And if it doesn’t do that, then it might just be the end of its CBDC. So it’s going to be very interesting to see over the next, hopefully, year or so if we can get answers about what’s going on, but it doesn’t seem to be the success it once was.

――Thank you so much for a very fruitful interview.

Mr. Anthony: Absolutely. It was so great to chat about this. I think the experience in Nigeria and China is the silver lining out of all this. And that’s why I love the question which mentioned the domino effect. Because that’s when it kind of clicked for me when I was thinking about it in terms of that domino effect, that we’re no longer seeing it as this inevitability.