Iowa Bill would take a step against a potential central bank digital currency

DES MOINES, Iowa (Feb. 11, 2024) – A bill introduced in the Iowa House would take a small step to limit the impact of any potential future central bank digital currency (CBDC).

Rep. Charlie Thomson introduced House Bill 2358 (HF2358) on February 7th. The legislation would prohibit state government agencies from accepting a payment using central bank digital currency. It would also prevent them from participating in any test of central bank digital currency.

The bill is similar to a law passed in Alabama in 2023.

IN PRACTICE

In the spirit of James Madison’s blueprint in Federalist #46, enactment of HF2358 would create “barriers” to implementing a CBDC in Iowa. Madison said “a refusal to cooperate with officers of the union” coupled with “the embarrassments created by legislative instruments,” would “in any state oppose difficulties not to be disdained.”

Other states have also taken steps to push back against the use of CBDCs. Florida and Indiana both enacted laws removing a central bank digital currency (CBDC) as money in the state’s Uniform Commercial Code (UCC).

How such legislation would play out against a CBDC in practice, should the federal government attempt to implement one, is unknown.

Opponents of the legislation generally take the position that states can do nothing to stop a CBDC, since – in their view – under the Supremacy Clause “any federal law on this point would automatically override state law.”

We’ve heard this song and dance about other issues before.

In the run-up to the 1996 vote on Proposition 215 in California, voters were repeatedly told that legalizing marijuana, even for limited medical purposes, was a fruitless endeavor, since, under the Supremacy Clause, any such state law would be automatically overruled . by the Controlled Substances Act of 1970 (CSA). At best, opponents told Californians, the state would end up in an expensive and losing court effort.

But despite those warnings, Californians voted yes, setting in motion the massive state-level movement we see today, where a growing majority of states have legalized what the federal government prohibits. Eventually, the federal government will likely have to back down, if only to save face, because it has become impossible to fully enforce its federal ban over this massive state and individual resistance.

A similar situation played out in response to the REAL ID Act of 2005, already 17 years late in full implementation because a significant number of states decided not to participate, or in some cases only offered residents a choice to withdraw. There, federal officials have confirmed that state-level roadblocks to implementation are the primary reason for the ongoing delays.

“Roadblock” is likely how this legislation to oppose a CBDC could play out, and it’s part of James Madison’s four-step blueprint for how states can stop federal programs.

But, as seen so far with issues like marijuana and the REAL ID Act, whether or not a federal program is implemented ultimately comes down to the number of roadblocks set up by states, and the willingness of the people to participate take, or not.

CENTRAL BANK DIGITAL CURRENCIES (CBDC)

Digital currencies exist as virtual banknotes or coins held in a digital wallet on your computer or smartphone. The difference between a central bank (government) digital currency and peer-to-peer electronic cash like bitcoin is that the value of the digital currency is backed and controlled by the government, just like traditional fiat currency.

Government-issued digital currencies are sold with the promise of providing a safe, convenient and more secure alternative to physical cash. We’re also told it will help stop dangerous criminals who like the intractability of cash. But there is a darker side – the promise of control.

The root of the move to government digital currency is “the war on cash.” Eliminating cash creates the potential for government to track and even control consumer spending.

Imagine if there was no cash. It would be impossible to hide even the smallest transaction from the government’s eyes. Something as simple as your morning trip to Starbucks will not be a secret from government officials. As Bloomberg put it in an article published when China launched a digital yuan pilot program in 2020, digital currency offers China’s authorities a degree of control never possible with physical money.

The government can even “turn off” an individual’s ability to make purchases. Bloomberg described how much control a digital currency could give Chinese officials.

The PBOC has also indicated that it may place limits on the sizes of some transactions, or even require an appointment to make large transactions. Some observers wonder if payments could be linked to the emerging social credit system, in which citizens with exemplary behavior are ‘whitelisted’ for privileges, while those with criminal and other offenses find themselves left out. “China’s goal is not to make payments more convenient, but to replace cash, so it can track people more closely than it already does,” argues Aaron Brown, a crypto investor who writes for Bloomberg Opinion.

Economist Thorsten Polleit outlined the potential for Big Brother-like government control with the advent of a digital euro in an article published by the Mises Wire. As he put it, “the path to becoming a surveillance state regime will accelerate significantly” if and when a digital currency is issued.

In 2022, the Federal Reserve released a “discussion paper” examining the pros and cons of a potential US central bank digital dollar. According to the central bank’s website, there is no decision on the implementation of a digital currency, but this pilot program reveals the idea is further than most people realized.

WHAT’S NEXT

HF2358 has been referred to the House Commerce Committee where it must receive a hearing and pass with a majority vote before moving forward in the legislative process.

Tags: central bank digital currency, HF2358, Iowa

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