Gov. Ron DeSantis recently raised the specter of the U.S. government tracking ordinary Americans’ purchases — and even blocking transactions of which it disapproves.
Decrying what he called “woke banking,” DeSantis told the conservative Pennsylvania Leadership Conference that he would make sure Floridians “are not discriminated against” because they “own guns or they’re Christians or they’re conservative.” He continued:
“One of the things we’re gonna ban in Florida this year is the idea of a central bank digital currency that they’re trying to do. This is something where they want the (Federal Reserve) to control a digital dollar. And guess what’ll happen? They’re gonna try to impose an (environmental, social and governance) agenda through that.
“You go and use too much gas, they’re gonna stop it. They’re not going to honor the transaction because you’ve already bought more than what they think. You wanna go buy a rifle, they’re gonna say no, you have too many of those, you can’t do it.”
DeSantis’ remarks on April 1 reiterated his stance against businesses adopting policies of diversity, environmental stewardship and other social goals.
His comments echoed other concerns raised online, mainly by conservatives, about the supposed risks of centralized digital banking. These have frequently been debunked or shown to be exaggerated.
Are we on the verge of a central bank digital currency that would allow the Federal Reserve “to control a digital dollar,” as DeSantis said? Multiple experts dismissed the notion. Even if it were technically feasible, current U.S. laws would not permit the kinds of monetary surveillance and control that DeSantis described.
The Federal Reserve is studying the possibility of creating a digital currency, which DeSantis’ press secretary, Bryan Griffin, told PolitiFact “leaves plenty of room for concern.”
“Centralized currency provides an avenue for the controlling entity to push an agenda,” Griffin said, pointing to moves by China’s government to increase surveillance of its citizens through the use of centralized digital currency.
However, when we checked with banking experts, we found broad agreement that DeSantis’ remarks overstate the likelihood that such a system is possible, much less likely, to emerge in the United States — for a variety of technical, legal and political reasons.
“DeSantis’ comments are nonsense backed by rhetoric,” said Aaron Klein, a senior fellow in economic studies at the Brookings Institution, a Washington, D.C.-based think tank.
FedNow vs. central bank digital currency
Part of the confusion stems from a misunderstanding of two distinct and separate initiatives by the Federal Reserve, both of which have inspired critical commentary online.
One effort, called FedNow, is an instant payment infrastructure that will let businesses and people send and receive payments “in real time, around the clock, every day of the year.”
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FedNow, which has been in development for years, is not a replacement for physical currency. Rather, it would replace other existing online payment systems, such as the widely used ACH system, which is used for payments such as paychecks and tax refunds and that the Federal Reserve helps operate.
FedNow would be comparable to private-sector online payment systems such as Venmo or Zelle, and its use would be optional for banks. The benefit, supporters say, is it would be faster and more efficient than existing systems.
FedNow is slated to begin operating later this year.
The second effort the Fed is working on — the possible creation of a central bank digital currency — is not as close to fruition and, in fact, may never happen. And unlike FedNow, it would be akin to physical currency.
The Federal Reserve Board website notes that Americans already hold money predominantly in digital form, such as in bank accounts and payment apps. A central bank digital currency would be different from that, because the value would be held by the Federal Reserve, rather than a commercial bank. Cash or paper currency would not be phased out and would coexist with a central bank digital currency.
In March 2022, President Joe Biden issued an executive order directing a feasibility study for a potential central bank digital currency.
Could a central bank digital currency prohibit certain purchases?
Six banking experts we contacted agreed that DeSantis’ vision of central bank digital currency, in which individuals’ spending is controlled by the government, is extremely unlikely. His speculation is “demagogic nonsense,” said Michael P. Malloy, a University of the Pacific McGeorge School of Law professor.
The first issue is whether a digital currency system could be designed with the surveillance capabilities that DeSantis mentions. Experts said such surveillance may be technically possible, but in practice, it would not be compatible with current laws and political realities.
“There is no single definitive form” of central bank digital currency, said Hilary J. Allen, an American University law professor. How the system ultimately looks and operates, including the degree of anonymity and government access to data, would reflect a country’s “technological infrastructure, the structure of its existing banking industry, and public attitudes towards privacy, among other things,” she said.
Meanwhile, even if it is technologically possible, Allen said, “technology does not operate in a vacuum” and systems can only achieve specific goals “if the relevant social and legal institutions permitted such use.”
Right now, U.S. laws do not permit the kinds of surveillance and control that DeSantis describes, said Gary Richardson, a professor of economics at the University of California-Irvine. “It does not allow the central bank to take actions like this,” he said.
Currently, the Fed is empowered and structured to deal directly with banks, rather than with individual members of the public. “It is likely that amendments to the Federal Reserve Act would be necessary before a central bank digital currency could even be issued,” said Ryan Clements, a University of Calgary assistant professor of business law and regulation.
Clements said policy papers by the Fed and Congressional Research Service have acknowledged myriad legal uncertainties, design considerations and other complexities. This makes concerns such as DeSantis’ “premature,” he said.
On March 8, Fed Chairman Jerome Powell testified to the House Financial Services Committee that the Fed could not launch such a currency without a new law.
It also appears to be technically possible to structure a central bank digital currency system in ways that minimize the possibility of government snooping, Bloomberg Law reported. In a joint project, the Massachusetts Institute of Technology and the Federal Reserve Bank of Boston built a theoretical digital currency that demonstrated the ability to process transactions without centralized storage of individual identities and balances.
Is there a desire to surveil and block customer purchases?
In part because of the backlash from DeSantis and others, it’s not clear the idea will move forward.
“It is not even certain that the Federal Reserve will pursue a central bank digital currency at all, let alone with these kinds of powers,” Allen said.
Powell testified in March that “we haven’t decided that this is something that the financial system in the country would want or need, so that’s going to be very important.”
Even if the Fed decided to create a digital currency system, it would take “a significant amount of time” and “will invariably need legislative solutions and congressional authority to be established before the question of discriminatory programmability even enters the conversation,” Clements said.
Despite DeSantis’ comments linking the central bank digital currency to an environmental, social and governance agenda, there is no indication that those social movements are advocating that the federal government take the step of surveilling and blocking individual purchases.
“It is a specter created to scare the uninformed,” said Richardson.
Staff writer Loreben Tuquero contributed to this report.
