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CBDCs pose serious risks to financial privacy, economic freedoms says Cato Institute

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Yesterday, the Cato Institute published a report “assessing the risks and dispelling the myths” of central bank digital currencies (CBDCs). As a libertarian think tank, the organization is broadly opposed to a federally controlled digital dollar, arguing that the costs are high and the benefits minimal. The paper concludes by arguing that Congress should oppose any government plans to issue a CBDC.

The report begins with the claim that CBDCs constitute a fundamental threat to America’s core freedoms, “a cost that far outweighs the purported benefits that proponents promise.” Despite this, the authors note that central bankers in the U.S. and beyond have flocked to CBDCs in an effort to assert control over payments systems, something that “should have no place in the American economy.”

The paper then goes on to challenge four proponents’ claims about the benefits of CBDCs, arguing that they all fail to stand up to scrutiny: that they would 1) promote financial inclusion, 2) spur faster payments, 3) protect the dollar’s role as a world reserve currency, and 4) facilitate the implementation of monetary policy. 

To defend the dollar’s international status and improve the implementation of monetary policy, the authors say, the government should focus on increasing existing financial protections, not trampling them.

Generally speaking, the authors argue that CBDCs fail to offer unique, or even additional, benefits compared with existing private sector alternatives. For example, stablecoins and other forms of private-sector cryptocurrencies already provide innovative solutions for financial inclusion and faster payments. 

According to Cato, the main problem is the serious risks that cannot be ignored. “CBDCs pose a substantial threat to financial privacy, financial freedom, and the very foundation of the banking system,” the authors note, so there is no reason for the U.S. government to issue a CBDC.

This sentiment is somewhat shared among some U.S. Republicans. Last month, Congressman Emmer appeared at the Cato Institute to warn of the risks of a “surveillance-style CBDC“. A few days later, Florida’s Governor Ron DeSantis and Texas Senator Ted Cruz introduced legislative proposals to stop the introduction of a retail digital dollar.