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How the Fed could use CBDCs to make your financial choices for you

by Rachel MillsMarch 10, 2023
A faceless bureaucrat

CBDCs are digital forms of fiat currency that are issued and backed by a country’s central bank. CBDCs are designed to function as a digital version of physical cash, and are intended to be used for everyday transactions, such as buying goods and services, or transferring money to other individuals or businesses.

Unlike decentralized cryptocurrencies, which are not backed by any government or central authority, CBDCs are issued and controlled by a central bank, and are typically designed to be used within a specific country or region. CBDCs can be used for both peer-to-peer transactions and for payments between individuals and businesses.

CBDCs are still in development, and there is currently no standardized approach to their design or implementation. However, several central banks around the world are actively exploring the possibility of issuing their own CBDCs.

CBDCs and Fed Control

CBDCs could potentially be used by central banks to manage and control spending in an economy in a few different ways. Here are a few examples:

  1. Direct distribution: Central banks could use CBDCs to directly distribute money to households or businesses, as a way of stimulating spending and boosting the economy. This could be done through various channels, such as tax rebates, universal basic income programs, or other forms of government assistance.
  2. Interest rates: CBDCs could be designed with interest rates that vary based on economic conditions. For example, if the economy is growing too quickly and inflation is a concern, the central bank could raise interest rates on CBDCs to encourage people to save more and spend less. Conversely, if the economy is sluggish and needs a boost, the central bank could lower interest rates on CBDCs to encourage spending.
  3. Transaction limits: CBDCs could be designed with transaction limits that restrict how much money people can spend or transfer in a given time period. This could be used to control spending in certain sectors of the economy that the central bank deems to be risky or over-inflated.
  4. Negative interest rates: CBDCs could also potentially be designed with negative interest rates, which would effectively charge people for holding onto their money rather than spending it. This could be used as a way of encouraging people to spend and invest, rather than “hoarding” their money.

These are hypothetical examples that are actively being discussed and are considered "features, not bugs" for those in power. The implications of these kinds of controls are staggering. Entire sectors of the economy could be shut off or hobbled with the flip of a switch. Certain people could have their money disabled, while others get their money doubled. The Fed could have us all by the nose. Would there be any due process?

Minneapolis Fed President Neel Kashkari is a critic of CBDCs and stated at a conference in 2022: "If they want to monitor every one of your transactions . . . you can do that with a central bank digital currency. I get why China would be interested. Why would the American people be for that?"

CBDCs and government surveillance

A recent article in the Wall Street Journal points out significant privacy and civil rights concerns with CBDCs for a government that is already playing fast and loose with surveillance.

"Just last month, it was revealed that the Secret Service, the Department of Homeland Security, and the Federal Bureau of Investigation have been engaged in an almost decadelong, warrantless financial surveillance of Americans who send or receive money through private operators such as Western Union and MoneyGram. It's naive to think that a government that is currently combing through individual financial information will stop doing so when it has the formidable power of a CBDC."

CBDCs and Watch Lists

The potential use of CBDCs to enforce terrorism laws, such as restricting account access and the ability to spend for someone on a terrorist watch list, is a possibility that has been discussed by some policymakers and experts. While financially crippling criminals and terrorists is a noble goal, there is a significant and ongoing risk that terrorist watch lists could be used as a political weapon against political adversaries, as they can be subject to abuse and manipulation by those with power and influence. This is because the criteria for adding individuals to terrorist watch lists are often not transparent, and there is a lack of due process and oversight in the process.

In some cases, governments or other entities may use terrorist watch lists to target individuals or groups who they perceive as a political threat, rather than based on any actual evidence of terrorist activity. This can lead to violations of due process, civil liberties, and human rights.

For example, there have been concerns that some governments have used terrorist watch lists to target journalists, activists, and other individuals who are critical of their policies or actions. Such actions can have a chilling effect on free speech and political dissent and undermine democratic values and institutions.

Watch List Reform Needed

With CBDCs on the horizon, it is more important than ever to ensure that government watch lists are reformed so they are transparent, fair, and subject to appropriate due process, oversight and review. This can help to prevent their misuse for political purposes and ensure that they are used solely for their intended purpose of preventing terrorist and criminal activity. Central Bank Digital Currencies should not be used to silence political enemies, but they easily could be. It is unsettling to imagine life in the United States with the power and control of CBDCs AND the watch list and surveillance system continuing as it is.

Remember: The gold in your pocket or in your safe at home cannot be "turned off" remotely.

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