A new Competitive Enterprise Institute report criticizes proposals for a central bank-issued cryptocurrency, which many call Fedcoin or digital dollar, as well as the Fed’s plan to create a real-time payment system, FedNow, that would compete with private payment processing services.
“During the pandemic and financial shock resulting from strict social distancing measures, the Federal Reserve was given unprecedented powers to flood the economy with dollars and invest directly in the private economy,” said John Berlau, CEI senior fellow and author of the report. “The Federal Reserve should not be able to use its expanded powers to start crowding out valuable private-sector businesses and innovations.”
From Facebook’s Libra to the innovative array of other payments technologies, entrepreneurs are already creating digital currencies and payments technologies to make all sorts of consumer and business transactions convenient, instantaneous, and reliable, Berlau details in the report.
The report flags five problems with government-created digital currency and payments:
- Stifling innovation and discouraging competition – The government has many unfair advantages over private sector competitors. These advantages include losses that taxpayers will be forced to cover, can be monetized in the case of the Fed, and exemptions from regulations imposed on the private sector.
- Conflict of interest – The Fed would sell products and services to banks that it regulates. Banks are already showing reluctance to buy real-time payments processing services from competitors of the Fed.
- Data privacy/security – Regulators would have direct access to data about personal transactions that could be instantly shared with other government agencies.
- Government manipulation of currency – A former FDIC chairman boasted that central banks could simply “print their own money,” despite the fact that government abuse of this power – made easier by government-issued digital currency – could create monetary instability and hyperinflation.
- Exceeding the Fed’s legal authority – A 1980 law signed by President Carter restricts new payment services and technologies from the Fed if they already existed in the private sector.
> View the report, Government-Run Payment Systems are Unsafe at Any Speed, by John Berlau, CEI Senior Fellow