Central Bank Digital Currencies
Project Hamilton is a research project of the United States Federal Reserve Bank of Boston and the Massachusetts Institute of Technology Digital Currency Initiative. Project Hamilton looked at the technical aspects of a hypothetical United States digital dollar central bank digital currency, or CBDC.
So what did Project Hamilton study? The project looked at the speed, accuracy, auditability, and privacy of a potential CBDC.
One model that achieved 1.7M transactions per second, they did not keep a history of transactions, nor did they use any cryptographic verification inside the core of the transaction processor to achieve auditability. The other achieved 100,000 transactions per second with auditability. One of the problems with an audit trail is that by looking at any collection of transactions, one could learn a great deal about a person or the company behind those transactions, defeating any efforts at privacy. They also learned that the more nodes that are involved in running a mock CBDC, the greater its flexibility and speed. The main functional difference between the two designs is that one materializes an ordered history for all transactions while the other does not. This highlights the initial tradeoffs found between scalability, privacy, and auditability.
It was a fascinating study.
But why would we need a CBDC?
Faster transactions? Batch transactions?
When the US was attacked on 9/11, the US was still flying physical checks across the county. With all flights stopped for a few days, technically, most banks were insolvent. The Federal Reserve came up with a program called Check 21. The offshoot of their work is why you can now take a picture of a check and deposit it. Also, the same day ACH (Automated Clearing House) transfer came from that research.
In 2022, according to the NACHA, the Federal Reserve’s ACH system processed 30 billion payments totaling $76.7 Trillion dollars. That is about 89 payments per US Resident. The daily limit has been raised to 1 million dollars, and now the ACH transfers settle four times per day. Check 21 took the US banks from processing physical checks to processing images of checks to fully digital payments.
It is truly an amazing bit of technology that slowly other countries are beginning to emulate. Europe has something similar, called Single Euro Payment Area (SEPA), but there is still no EU-wide system to pay suppliers. These problems are part of the US Federal Reserve's discontinuing their FedGlobal ACH payments services to Europe and Canada.
So we don’t need a CBDC for speed or ease of use.
Minnesota Representative Tom Emmer is not a fan of CBDC.
Emmer said,
The Fed does not, and should not, have the authority to offer retail bank accounts … Regardless, any CBDC implemented by the Fed must be open, permissionless and private. This means that any digital dollar must be accessible to all, transact on a transparent blockchain, and maintain the privacy elements of cash.
He further said that any CBDC requiring a retail customer to open an account with the Federal Reserve would put the Federal Reserve on an insidious path akin to China’s digital authoritarianism.
A Twitter Thread from/by Tom Emmer, GOP Majority Whip.
Tom Emmer @GOPMajorityWhip -Jan 12, 2022
As other countries, like China, develop CBDCs that fundamentally omit the benefits and protections of cash, it is more important than ever to ensure the United States’ digital currency policy protects financial privacy, maintains the dollar’s dominance, and cultivates innovation.
CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely.
Not only does this CBDC model raise “single point of failure” issues, leaving Americans’ financial information vulnerable to attack, but it could be used as a surveillance tool that Americans should never be forced to tolerate from their own government.
Requiring users to open an account at the Fed to access a United States CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism.
Any CBDC implemented by the Fed must be open, permissionless, and private. This means that any digital dollar must be accessible to all, transact on a blockchain that is transparent to all, and maintain the privacy elements of cash.
In order to maintain the dollar’s status as the world’s reserve currency in a digital age, it is important that the United States lead with a posture that prioritizes innovation and does not aim to compete with the private sector.
Simply put, we must prioritize blockchain technology with American characteristics, rather than mimic China’s digital authoritarianism out of fear.
His “H.R.1122 - CBDC Anti-Surveillance State Act” was introduced on 02/21/2023 and was referred to the US House Committee on Financial Services. As of 27 May 2023, that is where it sits.
So we may not want a CBDC if we have privacy concerns.
Do we need a CBDC solution for the poor? No, the poor deal in cash. They deal in cash because traditional banks are too expensive for them to use. A $20 per month fee for having a checking account, huge fees for bounced checks, and 3 to 5-day holds on non-cash deposits are not affordable and not workable. If they need digital currency, they either buy a prepaid stored value card and upload the value to a payment app such as Venmo or have a friend make a payment for them. They are poor. They are not stupid and know what will and will not work for them.
The poor have no use for a CBDC.
Do we need a CBDC to transfer larger sums of money for businesses? For larger transfers or payments, businesses either use checks or wires. They also tend to keep their money in an interest-bearing account. Transferring money from an interest-bearing account to a CBDC to a customer is silly. It can be transferred directly from their bank to the client or customer’s bank.
Businesses have no need for a CBDC.
Is a CBDC protection against fluctuations in the underlying currency from inflation and high or low interest rates? No. CBDC, as envisioned, would be denominated in the country's currency.
CBDC is not hedge against currency devaluation.
When money is withdrawn from a bank and held as a CBDC is no longer a reserve for that bank and that bank would have to seek more debt, would have to lend less, and charge more for the loans it was able to make. Further, CBDC creates a substantial “run risk.” In times of crisis, bank customers could flee from deposits to CBDC, which might be seen as safer and more liquid. The assumption by designers of CBDC is that in many jurisdictions, credible deposit insurance should continue to dissuade runs. The last two months of bank runs have nullified that assumption.
CBDC will increase the costs of borrowing and encourage or exacerbate bank runs.
CBDC will be costly for central banks and poses a risk to their reputations. CBDC requires central banks to be active in long payment chains, interfacing with customers, building front-end wallets, picking and maintaining technology, monitoring transactions, and being responsible for anti-money laundering.
Failure to satisfy these functions due to technological glitches, cyber-attacks, human error, or power outages would damage the central bank’s reputation and the country's economy. A hybrid was to have private banks issue CBDC that would be fully backed by reserves at the Central Bank. Somehow the idea of issuing digital currency tokens back by fiat money leaves me cold.
CBDCs come with significant reputational and economic risks.
CBDCs are a solution to a problem that does not exist in most countries, especially in developed nations. CBDCs are bad for developing nations as a CBDC will wipe out local banks and most of the local financial infrastructure, including banks, microfinance companies, and non-bank lenders.
Central Bank Digital Currencies are a finance fad item. like “smart beta investing,” “The BRICS,” “Dot Com” companies, and “structured investment products back by insurance.” The problem is that some central bankers think it might be a good thing. How many more banks would have gone under if depositors moved their dollars from a bank into a CBDC?
L. Burke Files CACM DDP
Senior Researcher and Advisor to the Founder
Unicus Research, LLC
Why would we accept this shit?
We don't.
Banks cannot force us.
CBDC will lead to the culling of Bankers who will be hanged openly in the streets for this.
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Around the world in 4h?
No problem at all.
With no speed limitations at all and an exponential rate of acceleration, in theory 40.000 km could be achieved within 1h.
And all this with absolute Zero Emissions..
This is my invention.
Of course I cannot do this alone... so I need help... financially and intellectually.
Hang the Bankers.
https://fritzfreud.substack.com/p/around-the-world-in-4-hours
Fascinating CBDC would increase the costs of borrowing and exacerbate bank runs. Based on the current administration's track record CBDC will championed and implemented. They'll think its free money.