The arrest of CEO Sam Bankman-Fried may be the smaller news story coming out of the collapse of FTX. Politicians will miss the point surrounding the massive political donations of the company and instead push for simplistic solutions to a complex issue. Ultimately, the collapse of the crypto company could lead to onerous federal regulations and the establishment of a federal “digital dollar.” The FTX issue isn’t large enough, under normal circumstances, to push through 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. This could be a fig leaf to justify it.
The loss of billions of dollars through the collapse of FTX is beginning to echo through the economy. Both private investors and crypto holders lost big in the company’s collapse. With nearly 1 million customers, the similarities to previous large-scale collapses are obvious. The criminal charges against Bankman-Fried perhaps offer someone on whom to pin responsibility, but not a means to fix the damage. The purported remedy instead may be the largest fiscal overhaul since the creation of the Fed.
A switch to a cashless, centrally-controlled digital form of currency could be relatively simple. Currently, the Fed and several major banks are running a “Digital Dollar pilot,” and it is being pushed as a good idea by media outlets including opinion writers in the Wall Street Journal. The Fed is preparing the electronic form of currency in conjunction with similar efforts by other nations. After all, the argument may go, if the United States doesn’t innovate, China or someone else will. Some in Congress already support the idea, and FTX may have provided just the grounds needed for a transition to such a system.
A digital dollar will enable a near-total control of each person’s transactions. This would extend far further than the Internal Revenue Service’s $600 income rule and could have massive impacts on taxation, earnings and privacy. The ability to instantly track, catalog and scrutinize every person’s transactions is a dystopian nightmare. Considering the relative efficiency of the IRS, it is entirely probable that the agency could send out audit letters to people for Venmo-ing their friends back for their share of a restaurant bill or taxi ride. Furthermore, the digital dollar likely will coincide with a gradual abolishment of physical cash. There may be some ability to keep small denominations or amounts, but if the transition mimics Franklin Roosevelt’s Executive Order 6102 banning most private ownership of gold, your financial autonomy would be at risk.
Who in Washington wouldn’t support the end of traditional cash? There will be plenty of politicians and pundits who extol the advantages: an end to counterfeiting (both domestic and funding rogue states such as North Korea), an effective end to traditional money laundering, and difficulty for criminals to pay for drugs. It also can be used to track questionable purchases and donations. Does it look like you’re buying cocaine or illegal firearms? You’re tracked. What about donating to the Canadian truckers the next time there’s a protest? After all, it has happened before. Donate to the “wrong” political cause? Perhaps your information is leaked. These are all events that have modern-day precursors in our country, Canada, China and beyond.
If you listen to the government, a digital dollar sounds like a panacea built on the end of economic liberty. There are key advantages to the federal and state governments. Your Social Security, welfare or paycheck would be deposited instantly. Your bank accounts would be synced with the Federal Reserve databases, your movements tracked through transactions, and you would become an asset to the Fed just as much as digitally “printed” dollars.
If you believe that such a concept is either far-fetched or likely only far in the future, think again. China’s dictatorship learned the full implications of monetary and social control over its population through digital currency and its social credit system. China launched the world’s first digital currency and it includes several concerning elements. Its record of transactions is private — unless law enforcement needs them. And although in an early stage, China’s digital yuan is used by more than 200 million people and just passed 100 billion yuan in transactions. Not only that, there is a very real possibility that those blacklisted by the Chinese government will be unable to use currency at all. China offers a model that we would be loath to follow. However, more regulation and the recent crypto crash may say otherwise.
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Democrats always seem to find a way to win in cases like the FTX collapse. A young, incompetent CEO gets to donate to left-wing causes, receives fawning media profiles, and then his company crushes the dreams of a million investors. Despite the reported heavy donations to left-wingers, they can simply accuse him of similar, yet untraceable, donations to Republicans in order to muddy the waters. Democrats then can use the circumstances they benefited from to push for far-reaching regulation that will expand the power of the regulatory state.
The collapse of FTX was perhaps predictable but not intentional. The vulture-like actions by those in power to take advantage of the disaster are both predictable and intentional. After all, to paraphrase Rahm Emanuel: Never let a crisis go to waste.
Kristin Tate is a libertarian writer and an analyst for Young Americans for Liberty. She is an author whose latest book is “How Do I Tax Thee? A Field Guide to the Great American Rip-Off.” Follow her on Twitter @KristinBTate.