The Fed’s seiniorage monopoly

Coverage of U.S. Rep. Mike Flood’s Flyover Fintech conference and why it matters

Nebraska Examiner report

Among the prominent articles covering the conference, from the Nebraska Examiner, Silicon Prairie News and the blockchain tipsheet, none mentioned some of the key issues discussed surrounding fintech‘s current focus. These are the issues that may have led U.S. Rep. Warren Davidson to say of the Federal Reserve’s work on central bank digital currency (CBDC), “..they are building the financial equivalent of the Death Star, and promising not to turn it on.”

These are the issues:

Below are quotes from the final panel discussion with Reps. Mike Flood, French Hill, and Warren Davidson regarding a compromise bill negotiated between Reps. Patrick McHenry and Maxine Waters. H.R. 4766, would establish a regulatory framework for payment stablecoins, digital assets issued only by insured institutions, and would protect investors from fraud like the recent FTX failure. Flood described bipartisan support in congress for the bill that he claims would also limit the desires of some in the White House and U.S. Rep. Waters to establish a central bank digital currency (CBDC).

Rep. Davidson on fractional reserve: “Stablecoin seems pretty intuitive if there’s no fractional reserve component, aside from U.S. dollar tether – which is essentially unregulated and off-shore – the things that are in the ecosystem are regulated at the state level as trust companies by the Department of Financial Services as trust companies and trust companies are old, a fairly conservative approach for the oversight of these.”

Rep. Davidson on state autonomy and asset backing: “…one of the breakpoints turned up over how much autonomy can states have, and part of that broke down with language like, ‘let states have some discretion over what assets are available, as reserves’, for example. For me, one of the bright lines was you can’t just have what in the statutes is a level one high quality liquid asset, treasuries basically, in one essentially, or as is the case commodities, commodities like stable coin. So without saying the word, ‘commodity’, we wanted to give discretion to states. We have various pieces of language in there, that’s where they hooked onto that phrase and said it could be ‘a rush to the bottom’, so I was like fine, let’s work on something that.. since there’s been money there’s been gold, since there’s been gold there’s been money so, if nothing else, can we at least agree on that? Maybe we’ll get there on that. But I think broadly, holding commodities on balance sheets has been a break-point for banks for a long time. If you look at a trust company holding those assets could be acceptable. Certainly if the token doesn’t represent a dollar but represents an ounce of gold, a bushel of wheat, or something else.”

Reps. Hill on White House support for the bill: “My instinct is they have some internal conflict.”

Rep. Davidson on the Federal Reserve and CBDC: “The last thing is, within the Federal Reserve, I think that’s a little bit of a concern…you know, French touched on it, they don’t really like anything that competes with their seiniorage monopoly. And, they are building the financial equivalent of the Death Star, and promising not to turn it on. They literally are hiring developers to write code to develop the central bank digital currency. And, I think the faster we can turn that off, in every way possible, the more focused we can help them be.”

Rep. Davidson on permissions, self-custody and the CBDC threat: “And I’ll say, just for everybody in this space, that the central bank digital currency thing, to me, is a real threat to western civilization. And, I think that for the average American, is a threat to this space. Because if they start to associate this space with that, it really could undermine what we’re doing… And fundamentally on self-custody, I think that everything short of self-custody really is permissioned, and there’s nothing more permissioned on the network than central bank digital currency. And there’s nothing more free than a permissionless peer-to-peer system. And, you at least have to preserve some component of that, that is like cash is. And, I think it is really essential to defending freedom. So I hope that we can do that, I see that as very interconnected because I feel that you could wind up with an effort that would undermine.. support for what this industry can be, for the county and frankly for freedom.”

Nebraska Legislature passes the Financial Innovation Act

Kelly Lammers, Nebraska Department of Banking & Finance Director, said that on May 20, 2021, a new way to access money was born. This legislation, the Financial Innovation Act, the second of it’s type in the nation behind Wyoming, provides for the regulation of controllable electronic records under the Uniform Commercial Code and as noted in the Department’s brochure, “authorizes a new charter for digital asset depositories and puts the state of Nebraska on the forefront of financial innovation and regulation of the blockchain/cryptocurrency industry.”

News coverage about the novel legislation

CBDCs and the Bank for International Settlements

John Titus, with Best Evidence, provides commentary on central bank digital current with a clip of Agustín Carstens, Mexican economist and general manager, Bank for International Settlements, explaining why it is important, “Now in order of our analysis on CBDCs, in particular to the general use, we tend to establish equivalence with cash, and there is a hugh difference there. For example, in cash we don’t know, for example, who is using a $100 bill today, we don’t know who is using a MX $1,000 today. A key difference with the CBDC is the Central Bank will have absolute control on the rules and regulations that will determine the use of that expression of Central Bank liability. And, also, we will have the technology to enforce that. Those two issues are extremely important.”

Related topics not discussed at the conference

  • United Nations SDG 16.9, and the digital wallet in Nebraska. The potential for a cashless society with biometric ID, social credit scores and debanking of the undesirables
  • What is FedNow and how is it like CBDC and what kind of key would be required
  • The power and wealth-building capacity for families and local communities of alternative currencies independent from the banking system. Ellen Brown’s ‘Public Bank Solution’ like advocated by Andrew Jackson, Abraham Lincoln, and William Jennings Bryan versus a private debt-based solution like the Federal Reserve
  • How the history of regulations, including meat and finance, teaches us that government regulation generally follows fear inducing events and headlines to the benefit of consolidating power and control within corporations and to the detriment of families and local communities.
  • Energy demand of crypto computer mining sites

Note: access some news article links through Lincoln City Libraries online resources