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The Central Bank Digital Currency

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Barbara L. Neuby
January 23, 2023

Project Hamilton- The United States Federal Reserve

When you change a currency, you change a culture. For our entire history as a sovereign nation, every cabinet department, all U.S. agencies, every state and local government, every nonprofit and all private businesses have operated on the dollar. That is about to change.

A few definitions are helpful. The Federal Reserve (aka “The Fed”) is the central bank of the United States. Presently, it holds the accounts of the U.S. government and is in charge of monetary policy, among other duties. The Fed is, technically, not a government agency and there are no “reserves.” Rather, The Fed is a consortium of private for-profit banks that manage our fiat currency called the dollar. When the United States needs additional funds that exceed the amount of tax revenues, it offers a bond to the The Fed in exchange for new credit. The credit is granted in terms of dollars then reflected in U.S. accounts and the new debt is added to the The Fed’s balance sheet. Dollars are then printed or created as electronic credits in a bank. Sometimes, The Fed simply decides to print more money to boost the economy. Nearly every country in the world has a central bank that operates this way.

For several years, The Fed and about 90 other countries have experimented with a new currency called a “central bank digital currency” (CBDC). Citing the dollar as outmoded, slow to transact and promoting crime, central banks feel the time is right to move currencies into the digital world. What exactly is a “central bank digital currency?” Will it hold parity with the dollar if it is not going to be the dollar, nor Bitcoin, nor another cryptocurrency, but an as yet unknown electronic token to be issued and under the control of The Fed?

This change will bring a seismic shift to public administrators. The dollar has always been currency of the realm and is the world’s reserve currency. It is a standard by which other currencies are measured. Every government agency, nonprofit and the private sector with which the public sector does business operates on the basis of the dollar. Every Social Security check, every SNAP card, every payroll and every agency budget will take on a new form.

In January of 2022, the Federal Reserve issued a report in which they describe the results of first experimental stage of the CBDC. A project between the Boston branch of The Fed and the Massachusetts Institute of Technology (MIT) showed that 100,000 error-free transactions can be operated by this new computer algorithm. The Fed has termed this project, “Project Hamilton.” In November of 2022, the second stage of the CBDC was reported by the New York branch of the Federal Reserve, as, “Project Cedar.” This second stage of the CBDC will facilitate faster, safer transactions between businesses and governments. These large-scale transactions will set the stage for the eventual and gradual implementation of the CBDC to every phase of administrative action.

When CBDCs are finally introduced into agencies, chaos, at first, is likely to occur. Every cabinet department, federal, state or local agency, as well as nonprofits that provide services and benefits will be required to recalculate their operations with this new unit of value. Doing so will require a huge shift in computer hardware and software, training, funding operations, benefit recalculations and human resource adjustments just to name a few major changes. Society, and the public administrators who serve it, will undergo a culture change. This column series will explore how the unfolding of the CBDC will impact public administration and the various clientele groups nationwide. Stay tuned. More to come.

Author: Barbara L. Neuby Ph.D. is a Professor of Public Administration at Kennesaw State University in Kennesaw, GA. She teaches and researches in the budgeting, public finance, and homeland security areas, and in her spare time is a numismatist.

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