The Undesirable Programmable Dollar: A Digital Leap Forward Amidst Chokepoint 2.0

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The Onward March of Digital Finance

In an era where cryptocurrencies and blockchain technology are reshaping the global financial landscape, a milestone has been achieved in the United States. A coalition of leading banking institutions, including the New York Federal Reserve, has successfully completed the testing phase of a dollar-based Central Bank Digital Currency (CBDC). The development promises significant implications for the future of digital finance in the country. However, the path to this future is fraught with regulatory hurdles and controversies.

In particular, H.R.1122 of the 118th Congress, known as the CBDC Anti-Surveillance State Act, has garnered attention. The bill, backed by Rep. Tom Emmer and Sen. Ted Cruz among others, seeks to prohibit the Federal Reserve and the Federal Open Market Committee from using any CBDC to implement monetary policy or offer certain products or services directly to an individual. This legislative action is taking place in an environment where regulatory bodies, notably, seem to be targeting crypto businesses for exclusion from the traditional financial system while engaging in development of central bank controlled monopolies.

Emmer’s bill, an expansion of his previous legislation from the 117th Congress, has gained significant traction among Democrats, showing bipartisan support for the initiative. The bill’s popularity arises from concerns about the potential for CBDCs to enable financial surveillance and threaten the liberties of law-abiding Americans. This sentiment is reflected in actions by state legislators as well. For instance, Florida passed an Anti-CBDC bill just recently being followed by North Carolina and Texas. U.S. credit unions also oppose the issuance of a CBDC digital dollar. They cite an absence of regulations concerning the Federal Reserve as their primary concern.

Breakthrough in Programmable Currency

The coalition of banks, a pioneering group of financial institutions including the likes of BNY Mellon, Citi, HSBC, Mastercard, PNC Bank, TD Bank, Truist, U.S. Bank, and Wells Fargo seem to be unfaced by these concerns. The industry giants recently concluded their 12-week proof-of-concept test of the Regulated Liability Network (RLN), a cutting-edge system based on shared ledger technology. This system aims to bring programmability to regulated money, representing a leap forward in the evolution of the U.S. dollar as a digital currency regulated by a central government.

The proof-of-concept tests examined two primary use cases: domestic interbank payments and offshore settlements. The findings revealed that the RLN and proposed CBDC could operate effectively to enable near real-time dollar payments. In doing so, the system could significantly enhance the efficiency of both domestic and cross-border transactions.

Isabel Schmidt, co-head of payments products at BNY Mellon, underlines the importance of expanding “the availability and efficiency of dollars for all our clients across the globe,” especially considering the U.S. dollar’s pivotal role in global trade and finance.

Shadow of Regulatory Controversy

Despite the promise of this digital currency breakthrough, the development takes place in a controversial environment. A seemingly coordinated campaign by prudential bank regulators appears to target crypto businesses for exclusion from the financial system. This campaign, now referred to as Operation Choke Point 2.0, draws parallels with the 2012 initiative where federal bank regulators, in conjunction with their state-level counterparts, exerted their supervisory authority to limit banking services for industries that had lost favor.

The focus of this second iteration is squarely on crypto businesses. It appears that regulators are stepping beyond their jurisdiction by labeling cryptocurrencies as a threat to the financial system, resulting in crypto-related businesses losing access to essential banking services.

Constitutional and Legal Concerns

The campaign raises a multitude of legal and constitutional concerns. Critics argue it could potentially violate the Constitution’s Fifth Amendment, the non-delegation doctrine, and the anticommandeering doctrine. In addition, it may infringe on the administrative procedure act’s requirements.

Critics of this regulatory overreach maintain that the actions taken by the regulators seem arbitrary and capricious. They accuse these regulators of failing to provide adequate explanations or engage in reasoned decision-making, simultaneously placing solvent banks into receivership solely because they provide services to the crypto industry. Most recently a number of large cryptocurrency exchanges and businesses have lost banking access or banking as a service access across the country with banks citing pressure by the regulatory agencies for this unprecedented stifling of competition.

The Role of Congressional Oversight

Amid the burgeoning controversy, immediate Congressional intervention is crucial. The legislative body is called upon to perform its oversight role and hold the involved agencies accountable. Proposed actions include demanding bank regulators to disclose their communications concerning the denial or regulation of access to the financial system by crypto businesses.

In addition, Congress should seek explanations for conclusions made by regulators that blockchain technology and crypto customers pose a risk to the safety of the financial system. Congress should also insist on adherence to the Administrative Procedure Act’s notice and comment rulemaking requirements.

Moreover, inquiries should be made into the New York Department of Financial Supervision’s decision to shutter Signature Bank and the decision to exclude bidders interested in acquiring Signature’s digital asset businesses.

Looking Forward

The seemingly increasing abuse of power by the nation’s bank regulators to accomplish objectives outside their authority and beyond their competence calls for immediate action. As the United States transitions into the era of digital finance, the rules of the game must evolve in a manner that promotes fairness and inclusivity for both traditional and emerging forms of financial transactions.

The future of America’s financial system stands at the cusp of a digital revolution. Will regulatory overreach strangle innovation, or will equitable policies pave the way for the new digital age to thrive? As the unfolding narrative of programmable dollars continues, the answers to these questions will prove critical in determining the path of the United States’ financial future.


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