NASHVILLE, Tenn. (March 25, 2024) – Today, the Tennessee Senate unanimously passed a bill that would expressly exclude a central bank digital currency (CBDC) from the definition of money in the state, creating potentially significant roadblocks to its use as such in Tennessee.
Sen. Bill Powers introduced Senate Bill 2219 (SB2219) on Jan. 30. Rep. Jeff Burkhart introduced the companion, House Bill 1901 (HB1901) in the House. Under the Tennessee Uniform Commercial Code (UCC), “money” means “a medium of exchange 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.”
SB2219 would add the term “does not include any central bank digital currency” to that definition.
An amendment in the Senate Commerce Labor Committee added language to also exclude CBDC from the definition of a “deposit account.”
On March 25, the Senate passed SB2219 by an 31-0 vote.
Similar legislation has already been signed as law in Indiana, Florida, South Dakota, and Utah.
IN PRACTICE
It remains unclear how changing the definition of money in the UCC would play out in practice against a CBDC if the federal government attempts to implement one.
The UCC is a set of uniformly adopted state laws governing commercial transactions in the U.S. According to the Uniform Law Commission, “Because the UCC has been universally adopted, businesses can enter into contracts with confidence that the terms will be enforced in the same way by the courts of every American jurisdiction. The resulting certainty of business relationships allows businesses to grow and the American economy to thrive. For this reason, the UCC has been called ‘the backbone of American commerce.’”
Passage of this legislation would, as noted by one opponent of the legislation, put a CBDC “into the bucket of ‘general intangibles” – rather than money, and wouldn’t ban its use completely.
But it could still potentially gum up the works and make it difficult for the government to fully implement a CBDC.
Opponents of the strategy and supporters of CBDC generally take the position that states can’t do anything to stop a CBDC, since – according to their view – under the supremacy clause “any federal law on this point will automatically override state law.”
We’ve heard this song and dance on other issues before. That’s what they said when California legalized medical marijuana in 1996. It didn’t quite turn out that way.
In the ramp-up to the 1996 vote on Proposition 215, voters were repeatedly told that legalization of marijuana, even for limited medical purposes, was a fruitless effort, since, under the supremacy clause, any such state law would be automatically overridden by the Controlled Substances Act of 1970 (CSA). At best, opponents told Californians, the state would end up in a costly, and losing court effort.
But despite those warnings, Californians voted yes, setting in motion the massive state-level movement we see today, where a growing majority of states have legalized what the federal government prohibits. Ultimately, the federal government will likely have to back down, even if just to save face, because it has become impossible to fully enforce its federal prohibition over this massive state and individual resistance.
A similar scenario played out in response to the REAL ID Act of 2005. The national ID system still isn’t fully up and running more than 17 years after the “final deadline” for full implementation.
Why not?
Because a significant number of states decided not to participate, drug their feet, or in some cases, simply provide residents with a choice to opt out. Federal officials have confirmed that state-level roadblocks to implementation are the primary reason for the continuing delays.
“Roadblock” is likely how this and other state-based strategies to oppose a CBDC will play out. This is part of James Madison’s four-step blueprint for how states can stop federal programs.
But, as can be seen so far with issues like marijuana and the REAL ID Act, whether a federal program is implemented or not ultimately gets down to the number of roadblocks put up by states, and more importantly, the willingness of the people to participate, or not.
CENTRAL BANK DIGITAL CURRENCIES (CBDC)
Digital currencies exist as virtual banknotes or coins held in a digital wallet on your computer or smartphone. The difference between a central bank (government) digital currency and peer-to-peer electronic cash such as bitcoin is that the value of the digital currency is backed and controlled by the government, just like traditional fiat currency.
Government-issued digital currencies are sold on the promise of providing a safe, convenient, and more secure alternative to physical cash. We’re also told it will help stop dangerous criminals who like the intractability of cash. But there is a darker side – the promise of control.
At the root of the move toward government digital currency is “the war on cash.” The elimination of cash creates the potential for the government to track and even control consumer spending.
Imagine if there was no cash. It would be impossible to hide even the smallest transaction from the government’s eyes. Something as simple as your morning trip to Starbucks wouldn’t be a secret from government officials. As Bloomberg put it in an article published when China launched a digital yuan pilot program in 2020, digital currency “offers China’s authorities a degree of control never possible with physical money.”
The government could even “turn off” an individual’s ability to make purchases. Bloomberg described just how much control a digital currency could give Chinese officials.
The PBOC has also indicated that it could put limits on the sizes of some transactions, or even require an appointment to make large ones. Some observers wonder whether payments could be linked to the emerging social-credit system, wherein citizens with exemplary behavior are ‘whitelisted’ for privileges, while those with criminal and other infractions find themselves left out. ‘China’s goal is not to make payments more convenient but to replace cash, so it can keep closer tabs on people than it already does,’ argues Aaron Brown, a crypto investor who writes for Bloomberg Opinion.”
Economist Thorsten Polleit outlined the potential for Big Brother-like government control with the advent of a digital euro in an article published by the Mises Wire. As he put it, “the path to becoming a surveillance state regime will accelerate considerably” if and when a digital currency is issued.
In 2022, the Federal Reserve released a “discussion paper” examining the pros and cons of a potential US central bank digital dollar. According to the central bank’s website, there has been no decision on implementing a digital currency, but this pilot program reveals the idea is further along than most people realized.
WHAT’S NEXT
SB2219 will now move to the House for further consideration. Once referred to a committee, it must get a hearing and pass by a majority vote before moving forward in the legislative process.
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