Central bank digital currencies: Is coining the money the same as digitizing the money?

Article I, Section VIII of the U.S. Constitution provides Congress the power “To coin Money, regulate the Value thereof, and foreign Coin, and fix the Standard of Weights and Measures.”

To “coin money” is, according to Black’s Law Dictionary, “to fashion pieces of metal into a prescribed shape, weight, and degree of fineness and stamp them with prescribed devices, by authority of government, in order that they may circulate as money.”

Coined money is included in the definition of currency. Again, according to Black’s Dictionary, currency is “coined money and such bank notes or other paper money as are authorized by law and do in fact circulate from hand to hand as the medium of exchange.”

Fast forward 235 years since the U.S. Constitution was ratified and the discussion is about a central bank digital currency. The Board of Governors of the Federal Reserve System define a central bank digital currency (CBDC) as ” a digital liability of a central bank that is widely available to the general public.” A CBDC, according to the Board of Governors, would enable the public to make digital payments.

In other words, a member of the general public using a CBDC would in effect have an account at a federal reserve bank and use this account to make payments.

Can an individual today have an account at the Fed? No. Currently, federal government agencies, and Federal Reserve System member banks, and certain branches of foreign banks are the primary entities allowed to have reserve accounts. Congress would have to pass legislation amending the Federal Reserve Act to allow the general public to hold accounts at the Fed.

Under the U.S. Constitution, can the Congress “digitize money”? That may depend on whether the process of coining money and the process of digitizing money can be equated on public policy grounds. The bottom line of the currency is to provide the American public with a payment system that connects the political economy, generates faith in the financial system, and validates the legitimacy of American government to control this jurisdiction.

(How is the politics impacting currency trade and value? Get my book at amazon.com/author/altondrew. )

If converting the analog representation of currency, i.e., a coin or banknote, into discrete units of data (bits) that can be separately addressed (identified or designated) can provide the American public with a financial system it can still have confidence in while maintaining the legitimacy of the government, then Congress could expand on the definition of coining money to include the digitization of money.

The other question is what impact would a central bank digital currency have on retail foreign exchange? I will address that in the near future.

Alton Drew

22 June 2023

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