A lot of policy is swirling around the definition of money and how crypto and CBDCs fit into that scheme, if not the larger political agenda.
May 29, 2023
By: Bobby Casey, Managing Director GWP
In the United States, it is Memorial Day. It’s a day meant to remember the fallen soldiers that fought in their wars. But I wonder if the day can be expanded to remember and lament the loss of other great things once endemic to the United States.
There was a time in US history when wars were properly declared by Congress. There was a time in US history when it didn’t have a Federal Reserve. And perhaps in the not-too-distant future we will be lamenting the loss of cash as a valid form of legal tender along with the privacy it accorded.
Central Bank Digital Currency is rolling out in 2023, and not just in the United States. Over twenty countries will have some iteration of a roll-out including Australia, Thailand, Brazil, India, South Korea and Russia.
The ECU is also set to have a plan in place this fall:
“The European Central Bank (ECB) has disclosed its plans for a phased roll-out of a digital euro. Initially, the bank would release the central bank digital currency (CBDC) for use in person-to-person (P2P) and e-commerce transactions. By autumn 2023, the Governing Council should finalize the implementation plan for the centralized digital currency.”
The US is launching FedNow, a real-time payment system, that banks and credit unions and use to transfer funds. The Federal Reserve insists that FedNow is in no way related to the elimination of cash or the US version of Central Bank Digital Currency.
I’ve always contended politicians rely on the bloat of government bureaucracy to cover their malicious tracks. It’s very easy to bury legislation and spending when the bills are thousands of pages long and no one has the time or inclination to read them. There’s so much red tape, it is nearly impossible to pinpoint who was responsible for what looks like a “clerical error”.
Americans are taught that the government is fairly simple in its structure: three branches of government, clear outline of roles and responsibilities. The reality is, there are agencies upon agencies with administrators galore.
It’s worth scrutinizing the activity around currency and cash because we can’t count on politicians, much less unelected bureaucrats, to be transparent about their various agendas.
One of the clauses in the US Constitution is the Commerce Clause (Article 1, Section 8, Clause 3). The purpose of which was to facilitate and keep the flow of commerce uncongested. That’s why you see a lot of reciprocity agreements between states. Each state recognizes the marriage licenses of other states, for example.
Pursuant to that, there is what is called the UCC:
The Uniform Commercial Code is a set of standards to facilitate interstate sales and commercial transactions such that all definitions pertaining to such commerce are uniform and clearly understood. The UCC, which has been overseen by the Chicago-based non-profit Uniform Law Commission since 1952, has been adopted in every state’s legal code and is amended from time to time. Typically, the amendments are non-controversial.
The Uniform Law Commission submitted a series of amendments, which were overlooked by several state legislatures, including South Dakota, regarding the definition of money. The verbiage reads:
“Money” means a medium of exchange that is currently authorized or adopted by a domestic or foreign government. The term includes a monetary unit of account established by an intergovernmental organization or by agreement between two or more countries. The term does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government.
It has some people a bit concerned that this is prohibiting existing cryptocurrencies from being used as money, while allowing CBDCs.
The concern isn’t without cause. The government clearly hates competition, which is why when they print money out of thin air we call it Quantitative Easing, and when you or I do it, it’s counterfeiting.
However, in this case, as if often the case, the ULC is trying to work through definitions that were established back in the 1950s, and is struggling to accommodate the nature of cryptocurrency within the definition of money.
The word “money” is used throughout the UCC to refer to a myriad of very specific things. True to its name, it has to keep everything “uniform”, including how the term “money” is used and applied in laws. Brian M. McCall, Orpha and Maurice Chair in Law at the University of Oklahoma told Cato:
“[I]f Bitcoin is money within the UCC, then it changes how someone would go through the necessary legal steps to secure an enforceable legal claim on Bitcoin as collateral for a loan. Likewise, it changes how jurisdiction is determined, as the location of the money in question is where the UCC assigns jurisdiction.”
Rather than restructure the entire UCC around a new definition of money, they opted to create a new category: Controllable Electronic Record (CER). This new category is a net win for existing cryptocurrency, according to Yaël Ossowski, visiting fellow at the Bitcoin Policy Institute:
“The bill in question—based on an update to the Uniform Commercial Code—not only expands definitions and protections for Bitcoin, but actually creates a legal mechanism for recognizing self‐custody and for the protocol’s inclusion in traditional lending, insurance, and commercial transactions. In a sense, it’s an upgrade to existing commercial law that would allow Bitcoin to be used as collateral for all future financial contracts.”
The same issue arises with CBDCs. It too will get its own category of Electronic Money. And while CBDCs are a concern, this change in the UCC isn’t what is ushering them in. It’s not stopping it either, so we remain ever vigilant.
Just because freedom has become a distant memory for politicians, doesn’t mean we all have to follow suit. These signals in policy are reminders to keep our options open and diverse.
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