The value of the U.S. currency needs to be increased so that investment capital comes to the United States, and if invested into productive activity, is placed into the hands of American labor via wages. The GOP failed to take currency valuation into account when its congressional caucus pushed through HR 5403.
HR 5403 prohibits the issuance of central bank digital currencies (CBDC). HR 5403 defines a CBDC as a form of digital money or monetary value denominated in the national unit of account (the dollar or USD) that is a direct liability of the Federal Reserve System. HR 5403 prohibits issuance prohibits issuance of a CBDC either directly to an individual or indirectly to an individual through a financial intermediary.
Nor can the U.S. Treasury issue a CBDC. The majority concluded in H. Report 118-493 that while a digital token can be used to represent a fiat currency, the Federal Reserve System does not have the legal authority to implement a retail CBDC model.
What is the rationale, the narrative behind the GOP majority’s view of a CBDC? First, the Federal Reserve System’s occupation of the retail banking system space via issuance of a CBDC would politicize the central bank.
Second, according to the majority, a retail CBDC could reduce the amount of deposits in the banking system.
Third, indirect issuance of a retail CBDC would not resolve the issue of inclusivity of banking. The majority believes that depositors may have just as much distrust in having accounts at a central bank as they do in having accounts at retail banks.
As far as the majority is concerned, the Federal Reserve System has failed to demonstrate what problems a central bank digital currency would solve.
In my opinion, as an agent of the Legislative power responsible for the valuation of the currency, the Federal Reserve System should conduct monetary policy with the goal of maintaining demand for the USD. The prime issue that HR 5403 should reconcile is whether the bill optimizes the value of the USD.
As depositors, we trade bank and non-bank accounts in search of the highest yield. Whether a bank saving, checking, or certificate of deposit account, or a non-bank money market account or trading/investment account, there is a search for yield that generates higher returns of income.
What is the State’s role in the generation of higher returns? Some may argue that pursuant to free market principles, the State should play no role in the individual’s generation of higher income. A free market, they will argue, means participants, producers, suppliers, consumers, etc., set market prices based primarily on the demand of goods and services. But as I concluded in a December 2023 blog post, it is the State that sanctions a market for its currency and licenses private actors to buy and sell the currency.
A market is a public, social program created to generate the transactions that lead to taxable revenue. Private actors participate in the program in exchange for the right to earn interest and trade income from the spreads between bid and ask.
Congress, as the regulator of the value of money, wants the supply of money to change accordingly in order to set its value. Voters want a market system that they can trade in and make an income.
HR 5403 nor its accompanying House report show any indication the majority have considered the dynamics of creating a market for the currency such that demand for the currency and its spending power are converted into bonds and equities and invested into going concerns that employ workers. Employment for most people is how currency enters their hands.
This is not a position for or against central bank digital currencies. Given that the USD is the settlement mechanism that most of us use for transactions and given that a few of us also have an economic interest in the price movement of the USD, as the regulator of the currency’s value, the Congress should make any decision on the currency based primarily on the duty described in Article I, Section VIII of the Constitution.
Alton Drew
27 May 2024
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