The arrest of CEO Sam Bankman-Fried may be the smaller piece of news to come out of the FTX collapse. Politicians will miss the point of the company’s massive political donations and instead try to find a simple solution to a complex issue. Ultimately, a cryptocurrency company bankruptcy could lead to onerous federal regulations and the creation of a federal “digital dollar.” The FTX issue is not, under normal circumstances, large enough to effect such dramatic banking and financial changes, but it is clear that those at the Federal Reserve and many in Congress have been salivating for such changes for years. It might be a fig leaf to justify it.
As a result of the collapse of FTX, the loss of billions of dollars begins to reverberate in the economy. Both private investors and cryptocurrency holders suffered huge losses in the company’s collapse. The similarities to previous large-scale crashes with nearly 1 million customers are obvious. The criminal charges against Bankman-Fried perhaps offer someone to bear responsibility, but not a remedy for harm. Instead, the proposed remedy could be the biggest fiscal overhaul since the Fed’s inception.
The transition to a cashless, centrally controlled form of digital currency could be relatively straightforward. Currently, the Fed and several major banks are conducting a “Digital Dollar pilot” that is being promoted as a good idea by media outlets, including the Wall Street Journal columnists. The Fed is developing an electronic form of currency, along with similar efforts in other countries. After all, the argument might go, if the US doesn’t innovate, China or someone else will. Some in Congress already support the idea, and the FTX may have provided the necessary grounds for moving to such a system.
The digital dollar will allow almost complete control of each person’s transactions. This would stretch far beyond the Internal Revenue Service’s $600 income rule and could have major implications for taxation, earnings and privacy. The ability to instantly track, catalog and audit every person’s transactions is a dystopian nightmare. Given the relative effectiveness of the IRS, it’s entirely possible that the agency could send audit letters to people to pay back their Venmo-ing friends for their share of a restaurant bill or a cab ride. In addition, the digital dollar will probably coincide with the gradual elimination of physical cash. There may be some ability to hold small denominations or amounts, but if the transition mimics Franklin Roosevelt’s Executive Order 6102, which banned most private ownership of gold, your financial autonomy would be at risk.
Who in Washington would not support an end to traditional cash? There will be many politicians and pundits extolling the benefits: an end to counterfeiting (both domestically and funding rogue states like North Korea), an effective end to traditional money laundering, and difficulty in making criminals pay for drugs. It can also be used to track suspicious purchases and donations. Looks like you’re buying cocaine or illegal firearms? You are being followed. How about donating to Canadian trucks the next time there’s a protest? After all, it has happened before. Donating to the “wrong” political cause? Maybe your data has been leaked. All of these are events that have precursors to the modern era in our country, Canada, China and beyond.
If you listen to the government, the digital dollar sounds like a panacea built on the end of economic freedom. Federal and state governments have major advantages. Your social security, welfare or paycheck will be deposited immediately. Your bank accounts will be synced with Federal Reserve databases, your movements will be tracked through transactions, and you will become an asset of the Fed as digitally “printed” dollars.
If you believe that such a concept is either distant or only in the distant future, think again. The Chinese dictatorship has learned all the consequences of monetary and social control over its population through a digital currency and social credit system. China has launched the world’s first digital currency, and it includes a number of related elements. Transaction logs are private unless needed by law enforcement. Although in the early stage, China’s digital yuan is used by more than 200 million people and has exceeded 100 billion yuan in transactions. Not only that, but the possibility that those blacklisted by the Chinese government will not be able to use the currency at all is very real. China offers a model that we will avoid following. However, more regulation and the recent cryptocurrency crash may say otherwise.
Democrats always seem to find a way to win in cases like the FTX collapse. A young, incompetent CEO can donate to left-wing causes, get sleazy media profiles, and then his company shatters the dreams of a million investors. Despite heavy donations to leftists, they can accuse him of making similar but untraceable donations to Republicans to muddy the waters. Democrats can then use their advantage to push for sweeping regulation that would expand the power of the regulatory state.
The collapse of FTX was perhaps predictable, but not intentional. The worm-like actions of those in power to exploit disaster are both predictable and deliberate. After all, to paraphrase Rahm Emanuel: Never let a crisis go to waste.
Kristin Tate is a libertarian writer and analyst for Young Americans for Liberty. He wrote his last book “How can I tax you? The Field Guide to the Great American Rip-Off.” Follow him on Twitter @KristinBTate.