CBDCs Wrongfully Break Down the Separation Between Money and State

Central banks around the world are accelerating their experiments with issuing digital currency. Whether it’s the New York Fed’s announcement of a successful proof-of-concept, or the Bank of England’s recent completion of the next phase of its digital pound experiment, over 130 countries around the world are toying with issuing central bank digital currency (CBDCs). 

And why wouldn’t they? Central banks can announce that they are protecting consumers and introducing cost-saving devices by removing private banking middlemen. And, simultaneously, they gain a whole new tool in their policymaking arsenal. 

Yet however tempting it is to remove these middlemen, the key question is who will stand on the other side of the ledger – to which the only answer is a sprawling and inquisitive government that can track every dollar and cent you spend.

Max Raskin is an adjunct professor of law at New York University and a fellow at the school’s Institute for Judicial Administration. Richard Epstein is a law professor at New York University, a senior fellow at the Hoover Institution, and a senior lecturer at the University of Chicago.

The basic idea as it stands is that a central bank – say, the Bank of England – would issue a so-called “digital pound” that would represent a direct claim on the central bank – the same way cash is today. (The Bank of England, in fact, has begun to create infrastructure that would allow individuals to use digital wallets to store digital pounds and have those wallets interact with merchants and other users.)

CBDCs would also mark a major change from current practices where central banks like the Federal Reserve and the Bank of England do not offer accounts to direct depositors. Instead, at a huge cost, a private banking system stands between the central bank and the accounts held by businesses and individuals.

Why think that an influx of thousands of new banker-bureaucrats will perform any better?

So, on the surface, there is some pull to the claims that central bank digital currencies will decrease unnecessary costs. But these supposed efficiency gains are both illusory and dangerous. Middlemen operate in thousands of markets with agents, aggregators and monitors in virtually every major line of business. These actors cannot be dismissed as…