How Durbin & Co. Credit And Debit Card Controls Could Pave The Way For CBDCs

Central Bank Digital Currency – the digital form of a national currency that tracks transactions within a government digital ledger – is an idea that seems to be losing whatever modicum of support it had among the general public in countries across the world. As Ari Patinkin and I write in RealClearMarkets, “from the U.S. to Europe to Africa – more and more of the general populace are rejecting CBDCs as they learn what they would entail and experience them in practice.” In the U.S., just 16 percent support a CBDC issued by the Federal Reserve, according to a recent Cato Institute poll. Opposition rises even further in the poll when Americans are informed that CBDCs can be used for nefarious tasks such as monitoring personal spending and controlling the ways people spend their money.

Yet we shouldn’t count out a U.S. imposition of CBDCs yet. For reasons of both ideology and rent-seeking on behalf of certain businesses, much of the political and financial elite supports them. This coalition of business and government officials supporting more state intervention is described in a popular new country song as the “Rich Men North of Richmond,” and its singer-songwriter Oliver Anthony also expressed the sentiments of many when he decried in a recent Free Press interview the cronyist “corporations who work with our government.” Yet this coalition motivated by both ideological and rent-seeking desires has ways ways of setting the stage for policy proposals to expand governmental powers.

Among these ways of ginning up support for CBDCs – as well as the Fed’s recently implemented FedNow payment system that raises similar concerns about privacy and government surveillance – is by finding supposed deficiencies in the private payment processing market and claiming a “market failure” justifies massive state intervention. Yet what advocates of CBDCs and FedNow rarely if ever acknowledge is that government regulations that distort markets are major factors in many of these deficiencies.

Exhibit A is the Durbin Amendment, which caused the number of unbanked Americans to soar. The measure was enacted in 2010 as part of the Dodd-Frank financial overhaul at the behest of Senate Majority Whip Dick Durbin (D-IL) and the lobbying of some very rich retail corporations north and south of Richmond: including WalmartWMT -0.1%, TargetTGT -0.6%, and the Walgreens drug store chain headquartered northwest of Richmond in suburban Chicago in Durbin’s home state. The Durbin Amendment created stringent price controls that prevent banks and credit unions from earning profits or even fixed costs on the interchange fees these financial institutions charge retailers to process debit card transactions.

Read the full article on Forbes.