[Note: this post suffers from my slow writing speed, and since doing the bulk of the writing of it, has been overtaken by events. I will catch up in subsequent posts.]
I've been trying to avoid reading too much on the Trump administration's governance by imperial fiat, in an effort to preserve some measure of mental health. In ordinary times I've an inexhaustible appetite for grim news, but these are not ordinary times, and even I have my limits.
However there have been a series of executive orders since January which, together with prior pronouncements from those in the administration's inner circle, imply a wholesale reconfiguration of the US financial system, with foreseeably disastrous consequences. It's clearly madness, but I think I can see the method in it. Let me run it past you.
About a month ago, my online chum kat posted this:
Trying to understand the latest executive order.
https://www.whitehouse.gov/presidential-actions/2025/01/strengthening-american-leadership-in-digital-financial-technology/
"taking measures to protect Americans from the risks of Central Bank Digital Currencies "
āCentral Bank Digital Currencyā means a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank."
BUT isn't all (fiat) national money digital these days ? and a direct liability of a central bank ?
I had a skim through the "Strengthening American Leadership in Digital Financial Technology" executive order, and thought this was a question I was at least as qualified to answer as the next crazy old lady. In fact I thought it probably worth more that a couple of paragraphs, so I added "write a quick blog post" to my todo list, and over a month later here we are.
This definition of Central Bank Digital Currency (CDBC) in the context of some imagined novel insidious threat to all that is decent, is quite analogous to the administration's definitions of "female" and "male", and indeed their entire agenda. They have some dim perception of this or that aspect of the real world, are morally repelled by it, and so set about tearing up and rebuilding the world to conform to a fantasy world they believe existed before the coming of the Woke Apocalypse. In this instance, what so offends them is the fundamental nature of money and the banking system.
What is money?
"Money, then, is credit and nothing but credit. A's money is B's debt to him, and when B pays his debt, A's money disappears. This is the whole theory of money." - A. Mitchell Innes, 1913
Money is a financial asset to the holder and a financial liability to the issuer. The ultimate issuer is typically some form of government ā king, feudal lord, village chieftain, temple authority, whatever. Money is a government IOU. These days mostly (but not always) the government is that of a nation-state.
Money generally takes the form of ledger entries on a computer somewhere. It could also be in the form of cash: a transferable loose-leaf ledger entry that quite often ends up going through the washing machine, if you're anything like me.
To return to kat's question, while money is ultimately a government creation, not everything that we call "money" is a direct liability of the government.
If you deposit some cash with your bank, they don't stick it in a drawer with your account number on it until you come back to claim it. You've exchanged the cash (the government's liability) for an increase in your account balance (your bank's liability). The bank, if it doesn't need the cash to stock it's tellers (human or mechanical), will in turn exchange the cash with the government for an increase in their account balance at the central bank (an asset for your bank and a liability for the central bank). The government will likely just shred the cash. It's a returned IOU; it's worthless to them.
So you swapped cash for your bank's credit. Your bank swapped cash for digital central bank (i.e. government) credit. The cash likely went "poof" in a furnace somewhere, since that government liability was replaced by the government's new digital liability to your bank. Everybody is square.
I should probably have drawn a diagram to illustrate this process, but I hate drawing diagrams.
Central Bank Digital Currency
So here's where we get to the clash between reality and the MAGAverse, by the executive order's demand that the government should be:
[ā¦] taking measures to protect Americans from the risks of Central Bank Digital Currencies (CBDCs), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States.
Balances held by retail banks at the central bank (colloquially called "reserves") are a central bank digital currency, and the keystone of the financial system. They intermediate payments between accounts at different banks, between the government and banks, and between the government and the private sector (i.e. you and I) via the banks. In addition, government securities (i.e. bonds and such) are effectively term deposits at the central bank.
If you were to outlaw all this, all money that depends on this system (i.e. effectively all money) is worthless, as is the total stock of risk-free interest-bearing assets (government bonds) that the private financial sector depends on. So surely this can't be what the executive order is trying to do?
My first thought, spurred by the above mention of "individual privacy" was that the aim was limited to outlawing the "Postal Banking" proposal, which is raised every few years, usually by Bernie Sanders. It's a sound idea, aimed at providing the services that the private sector banks don't: effectively give every citizen an account at the central bank, use existing post offices as physical branches, extend short-term credit at non-usurious rates to kill the parasitic payday lending industry, and so on.
And it's hardly an untested idea. Australia (the nation-state, not the place) came into existence in 1901, but it didn't have a dedicated central bank until 1960. Prior to that, the role of a central bank was performed by the Commonwealth Bank of Australia, a government-owned retail bank. So retail deposit accounts at the CBA were technically central bank digital currency (well to be pedantic, it will have all been on paper ledger books in those days, but it's the same operations being performed on an older technology). The sky didn't fall in.
I turned to the Project 2025 Mandate for Leadership, the one-stop reference guide to the fevered imaginings of wealthy white American men, to work out what there might be to fear. The chapter on the Federal Reserve is authored by Paul Winfree, an alum of both the Heritage Foundation and the first Trump-branded administration. He does decry the "unprecedented surveillance and potential control of financial transactions" that a Sanders-style CBDC might provide to a government ā not an unreasonable fear, given the sort of people who can end up in government these days, but also goes much further.
According to Winfree, the Fed was conceived as "a quasi-public clearinghouse acting as lender of last resort" but, pursuing a recurring theme among Project 2025's many grievances, he complains that it has since been corrupted beyond recognition by governmental overreach. Notably, he asserts that the US government has abused the Fed's ability to extend credit "for its own advantageļ»æ by printing money to finance its operations".
There is nothing "quasi" about the public nature of central banks. As Scott Fullwiler puts it: Congress passed the Federal Reserve Act; the Federal Reserve did not pass the Congress Act. Furthermore, as was well understood by Mitchell Innes and others over a century ago, every act of government spending is necessarily the creation of a new asset/liability, and when an asset and its' corresponding liability are brought together again in the hands of the issuer (via taxation for example), they both vanish in a puff of accountancy.
I have many complaints about the day-to-day operations of central banks (particularly under neoliberal governments), but the potential for democratic accountability is not one of them. Winfree does not agree, and recommends the drastic curtailment of the Fed's powers and responsibilities, or otherwise it's complete abolition. So he does in fact literally call for fundamentally dismantling the US financial system as we know it and replacing it with a system known as free banking.
Free Banking
IIRC Scottish money used to be issued by different Scottish banks. So you would have a "Clydesdale" Ā£1 and a "Royal Bank of Scotland" Ā£1
Are private stable coins just the internet version of this ?
I hadn't heard of the Scottish example, which according to Wikipedia was quite successful (I haven't the spoons to look into why at the moment; neatest answers on a postcard will get you a Katy Klub badge). Elsewhere, it was usually a disaster.
In Australia, for instance the 19th century free banking system fell to bits when a real estate boom crashed in the early 1890s. (If you look at the grand old houses and commercial buildings in Australia, most of them have a year from the 1880s prominently carved into their facades.) Since all the banks in such an arrangement depend on a gentleman's agreement to accept each other's Ā£s at par, and/or hold large deposit accounts with each other in reserve, a single bank collapse swiftly propagates. In the Australian case, the colonial governments (Australia as a country didn't yet exist) stepped in to contain the crisis, but still the speculative boom and subsequent collapse caused the largest depression in Australia's history until the next one.
Free banking is about as sure a recipe for disaster as a gold standard, so it's not surprising that Project 2025 recommends both:
Under free banking, banks typically issue liabilities (for example, checking accounts) denominated in dollars and backed by a valuable commodity. In the 19th century, this backing was commonly gold coins: Each dollar, for example, was defined as about 1/20 of an ounce of gold, redeemable on demand at the issuing bank. Today, we might expect most banks to back with gold, although some might prefer to back their notes with another currency or even by equities or other assets such as real estate. Competition would determine the right mix of assets in banksā portfolios as backing for their liabilities.
Don't we all just yearn for a finance sector that is leveraged to the hilt on "equities or other assets such as real estate"? What could possibly go wrong?
The reference to "another currency" in the above quote is as close as I can come to an endorsement of crypto in this enormous document. Which brings us toā¦
The Trump Pump
The main thrust of this digital finance executive order is to deregulate and backstop the cryptocurrency faux-industry. So, aside from frustrating Bernie Sanders, the other standout proposal here is that the "Presidentās Working Group on Digital Asset Markets" is to:
ā¦evaluate the potential creation and maintenance of a national digital asset stockpile and propose criteria for establishing such a stockpile, potentially derived from cryptocurrencies lawfully seized by the Federal Government through its law enforcement efforts.
Asset forfeiture is a ripping wheeze. On paper, law enforcement authorities are empowered to "lawfully seize" property germane to a criminal investigation, and upon conviction the proceeds from the sale of such property are supposed to compensate victims, defray the expenses of the investigation, and so on. In practice it amounts to law enforcement substantially supplementing their budgets by looting the communities they are supposed to protect. The seizure is assumed legitimate until the owner of the property in question is able to demonstrate otherwise in court.
John Oliver did a story on asset forfeiture over a decade ago:
Asset forfeiture is how the US federal government (and state governments) already happens to hold a substantial quantity of cryptocurrency.
I don't know much about cryptocurrency beyond the fact that it's basically tulip mania with elements of a Ponzi scheme (although sadly you don't get a flower when it all collapses). So I turned to Molly White, who obsessively follows all the goings on in the crypto world so we don't have to. By Molly's reckoning, by itself this order is a damp squib:
ā¦I mentioned the horrified reaction by bitcoin maximalists to the rumors that Trump was considering cryptocurrencies other than bitcoin for his stockpile. This shift from the āstrategic national bitcoin stockpileā wording Trump used at the Bitcoin Conference in July 2024, to ādigital asset stockpileā, seems to cement this concern for a lot of bitcoiners, who lamented the likelihood of a ānational shitcoin stockpileā. Furthermore, there was disappointment that Trump was not establishing a āstrategic reserveā of the kinds promoted by Robert F. Kennedy Jr. during his presidential campaign, or by Senator Cynthia Lummis in her āBITCOIN Actā proposal. Both of those suggest that the US government should go out and buy a substantial quantity of bitcoin (4 million and 1 million BTC, respectively), which would pump the bags of bitcoiners (including Kennedy and Lummis themselves).
Instead, Trumpās executive order echoes his suggestion at the Bitcoin Conference that the US government should establish a stockpile by holding on to cryptocurrencies seized by law enforcement, rather than selling them after the assets are formally forfeited.
While not by itself ordering concrete action on the stockpile I'm sceptical that this entirely a nothingburger. Crypto grifters contributed significantly to the Trump campaign (and as Molly notes are well represented in the Trump's cabinet and Congress), and while it's hardly unusual for Trump to renege on a debt, he has doubled down on the sincerity of his promises in recent days, in an attempt to pump the price of various cryptocurrencies, which have been in accelerating freefall since inauguration day.
Crypto is in the last stages of the scam. When crypto's spruikers are targeting poor ethnic minorities, you can be sure that they are running out of affluent greater fools to tap. They have a lot to gain by acquiring the federal government as the ultimate greater fool.
The administration won't drop the plan because they're in on the con. The Project 2025 people running the administration him love it, because their infantile sense of morality tells them that credit money is an unholy abomination. So I'm assuming this executive order is just the groundwork necessary to plausibly claim that the plan comes via serious consideration by grown-ups, and not just a Trump whim. Even a lawless administration has to take one step at a time. Which brings us to another executive order, in my next postā¦