Are Digital Dollars the Future of Banking?

If Federal Reserve Chairman Jerome Powell had ever been a fan of history’s most successful podcaster—Joe Rogan—those days are probably finished. That’s because it only took about ten minutes for Rogan’s program to frame one of the most ambitious initiatives of Powell’s tenure as a public relations disaster.

During the Joe Rogan Experience on February 19, 2022, Rogan’s guest Maajid Nawaz delivered a chilling explanation of the G7 nations’ new plan to roll out central bank digital currencies, or CBDCs, which in the United States are sometimes called digital dollars.

Understanding the public relations damage that this broadcast did to the Fed’s plan to launch its CBDC first requires understanding how this new form of currency differs from other kinds of money.

Like crypto assets, CBDCs are a new type of digital cash intended as a means of exchange and as a store of value. However, that’s where the similarities end between these two novel asset classes. CBDCs are actually very different assets that differ from crypto assets like Bitcoin and Ethereum in two dramatic ways.

First, BSchools readers familiar with our previous report profiling business school research into the investment returns from crypto assets already understand that a tremendous advantage over competing assets stems from crypto’s decentralization. Their lack of a central managing authority means crypto assets are generally beyond the control of financial institutions and governments.

This is a powerful incentive for many segments of the financial services marketplace, such as bank customers fed up with steep fees to transfer funds overseas, or those tired of significant charges even for minimal ongoing checking account activity.

By contrast, central bank digital currencies don’t at all work in a decentralized way. In fact, CBDCs are hyper-centralized, in the sense that they could very well obviate many of the retail consumer financial services performed by branch banks and credit unions today.

Eventually, bank and credit union account holders in the United States would need to move their money to CBDC accounts on file within the Federal Reserve System based in Washington, D.C., and British account holders would need to establish similar accounts on file within Britain’s central bank, the London-based Bank of England. But there would first need to be a transition period while this changeover takes place.

In one possible transition scenario, local banks and credit unions would provide channels through their accounts that provide a customer with access to their CBDC account at the central bank. Under such an arrangement, the CBDC “master account” would nevertheless control an individual’s full spectrum of funds available through all payment mechanisms—including debit and credit card accounts—as well as the newer smartphone payment applications we’ve previously covered here at BSchools like Cash App and Venmo.

CBDCs as Programmable Money

But the hallmark feature of CBDCs is programmability, which means that funds are only released when an event happens. This is a profound distinction between crypto assets and CBDCs, with astonishing implications few if any people outside the banking industry understood before Rogan’s broadcast.

Nawaz—an astute London-based political commentator and broadcaster—came to Rogan’s studios well-prepared. On camera, he whipped out a carefully-selected article from The Telegraph to show Rogan entitled “Bank of England Tells Ministers to Intervene on Digital Currency ‘Programming.’” The report describes how a central bank like the Bank of England could program its new digital cash “to ensure it is only spent on essentials, or goods which an employer or Government deems to be sensible.”

Now, any current or future MBA student who learns that harsh truth about CBDCs is bound to feel alarmed—and possibly even a bit irate. Ambitious individuals like our BSchools readers don’t sacrifice up to two years and as much as $360,000 in tuition, fees, expenses, and opportunity costs to pay for their graduate management education only to have some third-party tell them how they can spend all their hard-earned paychecks for the next 40 years.

For those of us accustomed to the economic liberty of 100 percent control over our spending habits, that’s not the sort of arrangement any of us had in mind, and it certainly doesn’t seem like the American way.

Nevertheless, CBDC exceptions aren’t possible because the G7 central banks want universal control over the spending habits of everyone in their economies. And just to be clear, much as they want to control the spending habits of everyone else, they surely will want to control the spending of MBA alumni working for high-paying employers like Amazon, McKinsey, and Goldman Sachs.

CBDC “Cash Programming” in Action

Believe it or not, this article cited by Nawaz and a video produced from his interview with Rogan that went viral on social media only scratch the surface of all the restrictions the G7 nations’ central banks could attach to this new currency.

The technology enabling all the hypothetical yet realistic restrictions we’re about to describe in the following scenarios already exists. Using Nawaz as an example, here are a few of the specific “cash programming” applications some nations’ central banks might seek to impose through a CBDC power grab.

Travel Restrictions

Let’s suppose that for some reason, controllers working for the central bank or government do not want Nawaz to travel more than five miles from his home. What the controllers could do is geo-restrict his ability to spend. That way, he can’t fill up his tank at a gas station outside of a five-mile radius away from his home. Why? He can’t because none of his CBDC-monitored ATM or credit cards will complete payments while he’s more than five miles away.

What’s more, his central bank account might not even permit him to buy a cappuccino at Starbucks or a Big Mac at Mcdonald’s until he’s again close to home.

Free Speech Restrictions

Perhaps the reason that central bank controllers don’t want Nawaz to travel is that they’ve branded him as a dissident because British Prime Minister Boris Johnson’s administration views him as a political threat. Maybe the Bank of England might permit him to buy a plane ticket to Miami to escape London’s rain and fog for a few days. But when he tries to buy a connecting flight to visit Rogan’s studios in Austin so he can express his political views before a global audience, he finds that a CBDC restriction stops him from buying that plane ticket.

These are precisely the kind of “social credit” penalties already in effect in portions of China.

Nutrition Restrictions

What if Nawaz’s HMO or health insurance carrier wants to “encourage” him to lose a few pounds? CBDC programming linked to his HMO’s database might permit him to buy salads in supermarkets and restaurants, but won’t allow him to buy fatty foods like thick, juicy steaks.

Pollution Restrictions

Another CBDC restriction could establish a monthly quota on Nawaz’s carbon output, and restrict his airline ticket and gasoline purchases. After he exceeds his “carbon quota,” he can’t burn any more gasoline, diesel or jet fuel—that is to say, he can no longer purchase any travel until the CBDC resets his account on the first day of the following month.

Needless to say, this sort of rationing could result in terrible consequences if—because his vehicle’s running on empty and he can’t buy gas—he can’t drive his sick five-year-old son to a hospital emergency department.

Expiration Dating

“Expiration dating” refers to money in a CBDC account that one must spend before it expires.

Now, why in the world would policymakers want to force people to spend money right away before it vanishes? Maybe leaders urgently want to stimulate the economy through encouraging spending without delay; this might seem attractive as a policy option in economies with sluggish growth because of traditionally high savings rates, like Japan.

Forced Tax Collection

This is a particularly disconcerting option. It would provide a mechanism for the Internal Revenue Service to drain purportedly unpaid income taxes out of CBDC accounts without providing a taxpayer any due process ostensibly required by the United States Constitution, like fair notice and a hearing.

In other words, the Treasury Department could impose taxation without representation, even though that was a major cause of the American Revolutionary War. It could just withdraw the money from the account, essentially forcing the taxpayer to sue in court at their own expense to force the IRS to return the funds.

The End of Personal Sovereignty?

Skeptical readers may think that the scenarios described above seem far-fetched or may doubt the resolve of the central banks in launching digital currencies. These skeptics should pay close attention to the following video clip.

In October 2020, Bank of International Settlements General Manager Agustín Carstens explained how CBDCs would enable central banks to track and control every single transaction. Dr. Carstens, a former Bank of Mexico governor who holds a PhD in economics from the University of Chicago, delivered his remarks during an International Monetary Fund conference entitled “Cross-Border Payments—A Vision for the Future.”

In a scary 56-second excerpt from that address, Dr. Carstens did more than any other banking leader around the world to succinctly define the sweeping vision that the central banks plan for the hyper-centralized programmability of CBDCs. Dr. Carstens said:

In cash, we don’t know for example who is using a $100 bill today, we don’t know who is using a 1,000 peso bill today. A key difference with the CBDC is that the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that. Those two issues are extremely important, and make a huge difference with respect to what cash is.

Attorney John Titus, an expert on the Federal Reserve System, has written extensively on the central banks’ potential implementation of CBDCs. Here’s his frightening interpretation of what Carstens’ remarks imply, published in the 2020 Annual Wrap-Up of the Solari Report:

In many ways, I think the move to a central bank digital currency will spell the end of personal sovereignty, and I also think that it will eventually be the end of national sovereignty and bring in a system of global rules.

CBDC Resistance: Easy Steps Anyone Can Take

With the possible exception of a few thousand bankers, few if any citizens in advanced Western democracies would ever want to live under the kind of financial tyranny that CBDCs would impose. In the United States, imposition of digital dollars would likely require hearings on Capitol Hill followed by an act of Congress, so political activism would help. And fortunately, anyone opposed to CBDCs can take two other easy steps without delay.

#CashFriday

The first step’s leading advocate is Catherine Austin Fitts, the CEO and publisher of the Solari Report investment advice magazine. Before her cabinet appointment as assistant secretary of the Department of Housing and Urban Development in the first Bush Administration, Fitts served on the board of directors and as the managing director at Dillon, Read & Company, the venerable 166-year-old Wall Street investment bank acquired by Switzerland’s UBS Group in 1999. Including her MBA from the Wharton School, Fitts holds two degrees from the University of Pennsylvania.

Fitts argues that in order to impose an all-digital monetary system with total centralized control, a central bank would first have to drain all paper currency and coinage out of circulation. But if the population takes determined steps to keep all their paper currency and coins circulating, the central bank would find that removal to be a daunting challenge. Moreover, Fitts has calculated that only 10 percent of the population would be required to effectively keep paper bills and coins circulating throughout the economy.

Here are the simple steps that many now call the “Fitts Cash Plan:”

1. Use cash whenever you can, but on Fridays use cash ONLY.
2. Download the #cashfriday slogan and spread it on all your social media platforms. It’s especially important not to type out #cashfriday because of algorithms and censorship.
3. Keep it going for as long as it takes.

Those three simple steps are really all that are needed, says Fitts. Those who wish to pursue additional anti-CBDC steps—like moving their money to a good local bank or credit union—can find free publicly available guides available at the Solari Report’s website.

Encourage Popular Broadcasters to Discuss CBDCs

Besides using paper currency and coins, there’s another simple step everyone could take. This one involves sending brief messages to Joe Rogan’s staff and the management at his podcast’s distributor Spotify asking for more coverage of the CBDC controversy.

Now, why would that strategy make good sense? Surprising new data shows that Rogan—the 54-year-old comedian and the world’s most successful podcaster following his $200 million deal with the Swedish tech giant—now wields vastly more influence within the American mainstream media landscape than most of us realize.

Arguably, Rogan might have emerged during 2022 as the most influential personality in broadcasting. According to little-known January 2022 Nielsen ratings Spotify just released, on average about 11 million people tune in to a typical edition of the Joe Rogan Experience. By contrast, that’s almost 14 times CNN’s typical prime-time audience.

In fact, CNN—television’s oldest news network—only averaged about 820,000 viewers in prime time during late 2021. That sparse total buried CNN in the ratings cellar even before a series of scandals that ensnared popular primetime anchor Chris Cuomo and two producers further diminished the network’s viewership. What’s more, Rogan’s audience exceeds the viewership of the top-rated TV news program, the FOX News Network’s Tucker Carlson Tonight, almost fourfold.