A central bank digital currency is a dollar Washington could program

Imagine a dollar that comes with terms and conditions. You tap your phone at the hardware store, and a small box appears: "This purchase is not eligible. Please select an approved category." Imagine a dollar with an expiration date, so that the money in your account must be spent by the end of the quarter or it simply vanishes. Imagine a dollar that knows what you bought it for and has opinions about it.

Folks, none of that is science fiction. Every one of those features is technically easy to build into a digital currency that a central bank issues directly to the public, and that is precisely why I want us to look at the idea very carefully before anyone says the word "modernization" in the same breath as the word "dollar." The pitch always sounds like a convenience. The product is a leash.

What a central bank digital currency is

Start with definitions, because this subject is drowned in jargon, and the jargon is where the trouble hides.

A central bank digital currency, or CBDC, is a digital form of a country's money that is a direct liability of the central bank. Think of it as a digital banknote. If the Federal Reserve issued one to the public, the "retail" kind, you would hold an account or a wallet that the Fed, or an intermediary acting under the Fed's rules, would run, and the balance would be a claim on the central bank itself.

That is different from three things people confuse it with.

Bank deposits. The money in your checking account is a claim on your bank, not on the Fed. The bank lends most of it out, and you are protected by deposit insurance. Today the Federal Reserve does not offer accounts to the public at all. It deals with banks. Your bank is a buffer between you and the government's ledger, and the buffer is the point.

Cash. A paper bill is a bearer instrument. Whoever holds it owns it. No one needs to be told you spent it, and nobody can switch it off. A CBDC would be digital by nature, which means every transaction passes through some system that records it.

Bitcoin and other cryptocurrencies. Bitcoin is issued by no one, has a capped supply set in its software, and runs on a decentralized network. A CBDC is the opposite on every point: it is issued by a single institution, its supply is whatever that institution decides, and the whole network answers to one authority. People sometimes lump the two together because both are digital. They are opposites. One was designed to escape central control. The other is central control, upgraded.

There is also a middle category, the stablecoin, a privately issued digital token that promises to be redeemable for a dollar. Whatever you think of those, they are issued by private companies under private rules and legal obligations, not by the Fed as a direct claim on the government.

The argument in four premises

Here is the case, laid out so you can check each link.

One. A retail CBDC is a digital ledger controlled by the state. Every transaction made with it would pass through infrastructure that the state, or an entity acting under the state's rules, operates.

Two. A ledger of every purchase is a record of how a person lives: what they read, where they worship, whom they support, what they eat, which doctor they visit. Spread over years, it is a more complete portrait of a life than any wiretap could collect.

Three. Digital money that is issued and programmed by the state can be restricted, directed, limited, or made to expire. These are features that physical cash does not have and that a commercial bank account has only in a limited, legally bounded way.

Four. A power that exists will be used. Governments of every kind have found reasons to use the powers they hold, and "emergency" is the oldest reason of all. Free people do not hand the government a power they would be alarmed to see in the wrong hands, because they cannot guarantee whose hands they will be.

If all four premises hold, the conclusion follows. A retail CBDC would give government a power over the individual's economic life that no free society should authorize, whatever its stated purpose.

China shows what the technology can do

The most advanced experiment is in China, where the central bank's digital yuan, the e-CNY, began pilot programs in a handful of cities around the turn of 2019 to 2020 and widened them to more cities during 2020. It is promoted as a payment convenience, and in a large and rapidly digitizing payments market it may simply be one more app. But the design is instructive, because the Chinese system was built with the central bank in the position of seeing the flow of money.

The People's Bank of China has described the e-CNY's design in terms of "controllable anonymity," a phrase worth reading twice. Small payments may be relatively private; larger ones are traceable by the authorities. Anonymity that the state can lift is not anonymity. It is privacy by permission.

I am not saying that an American CBDC would be a copy of the Chinese one. I am saying that the technology allows both, and that when a one-party state builds the system, it uses the capabilities the system offers. The question for a constitutional republic is not "what would a good government do with this," but "what could a bad one do, and do our laws forbid it." The honest answer today is that the safeguard would be a statute, and statutes can be changed.

Canada, 2022: the freeze that was done with ordinary banks

Now consider a case that did not involve any CBDC at all, because it shows how a free society's government behaves when it holds the power over money and feels pressed.

In February 2022, protests by truckers and their supporters, the "Freedom Convoy," occupied streets in Ottawa and blocked border crossings. On February 14, 2022, the Canadian government invoked the Emergencies Act, the first time the law had been used since it was passed. Under the emergency orders, financial institutions were directed to freeze the accounts of people associated with the protests, and the order allowed that to be done without a court order. The government revoked the declaration on February 23.

I do not need to settle the argument over whether the protests were wise. People of goodwill disagree about the tactics. The point is the mechanism. In a modern economy, an order to a handful of banks can cut a person off from their own money overnight, without a trial. That was done in a G7 democracy, with the older, clumsier system of ordinary bank accounts. Now imagine the same decision with a central bank digital currency, where no commercial intermediary stands between the order and the balance, where the freeze is a line of code and takes effect in a second, and where the same system can also tell the authority who donated to whom.

That is the entire case for caution in a sentence: the Canadian example shows the power is real, and the CBDC would make it faster, cheaper, and easier to use.

The strongest case for a CBDC, stated fairly

Fairness first. The supporters of a CBDC are not all villains, and some of their points are serious.

They say a CBDC could make payments faster and cheaper, particularly across borders. They say it could extend access to people who do not have bank accounts, which was a real concern in an earlier era. They say that if the dollar does not go digital, other currencies, or private stablecoins, will take its place, weakening the dollar's role in world finance. And they say a well-built CBDC could include privacy protections, so that the worries above are matters of design, not destiny.

Those are real arguments. Here is the answer.

One: we already have faster payments. The Federal Reserve launched its FedNow instant payment service in July 2023, and private systems already move money instantly between ordinary people. Speed is not a reason to have the state issue the money directly. It is a reason to improve the pipes that already exist.

Two: inclusion does not require a government ledger. If the goal is to help people without bank accounts, the tools are low-fee basic accounts and competition among providers, not a digital dollar that the government can see into.

Three: "design" is not a guarantee. A privacy feature that a statute grants today a later statute can remove. The Constitution's protection of privacy in financial records is, today, weaker than most people suppose. In United States v. Miller (1976) and Smith v. Maryland (1979), the Supreme Court held that information you voluntarily hand to a third party, a bank or a phone company, does not carry the same Fourth Amendment protection as your own papers, the so-called third-party doctrine. The Court narrowed that rule for cell-site location records in Carpenter v. United States (2018), but a bank ledger is the textbook case of the old rule. A CBDC would erase even the thin buffer that a commercial bank provides. The Fourth Amendment protects "The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures," and a government that holds your every transaction does not need to search. It already has the papers.

Four: the competitiveness argument is an argument for sound money, not for surveillance. The dollar's global role rests on the rule of law, deep markets, and trust. A government that can program money to be spent a certain way is a government whose money is less trusted, not more.

What Congress and the White House have done

This is not a theoretical fight. The House of Representatives passed an anti-CBDC bill, the Anti-CBDC Surveillance State Act, in 2025, which would prohibit the Federal Reserve from issuing a CBDC directly to individuals. As of this writing I am not claiming it has become law; check Congress.gov for its current status, because the Senate and the president must act on a bill before it binds anyone. Separately, in January 2025 the president signed an executive order on digital financial technology that, as I understand it, bars federal agencies from establishing, issuing or promoting a CBDC. Read the order's text in the Federal Register, which is the authoritative place, rather than relying on anyone's summary, including mine.

An executive order is a promise from one administration. It can be rescinded by the next with a signature. A statute is better. A constitutional-style guarantee is better still. The point of the legislative effort is to move the protection from "this president says no" to "the law says no," because a power that needs only a signature to be restored is a power that has merely been parked.

Cash is a civil liberty

There is one more thing the coverage tends to leave out. We talk about cash as if it were a relic, and it does look quaint beside a phone. But cash has a property that nothing digital can match: it is the one form of money that requires no one's permission to use. You do not need an account, an identity check, an internet connection, or a bank's approval. A person who has been "de-banked," a church that has lost a processor, a small donor who would rather not have his name on a list, all of them can still pay with a bill.

That is why the defence of cash is not nostalgia. It is a defence of a freedom. If the end state of a "modernized" system is that a government can decide, transaction by transaction, which purchases are allowed, then a plan to phase cash out or squeeze it to the margins is a plan to remove the last exit. A free people protects the exits.

Measure it against the Founders

The Founders feared concentrated power and bounded it with enumerated powers and a Bill of Rights. Article I gives Congress the power to coin money and regulate its value; it does not give the executive branch or a central bank the power to supervise how citizens spend what they own. The Fourth Amendment forbids unreasonable searches of "papers, and effects." The Fifth forbids taking property without due process of law, and says no person shall be "deprived of life, liberty, or property, without due process of law." A balance frozen or expired by a government program is a deprivation of property. The question is always whether the process is real and who decides.

James Madison wrote in Federalist No. 51 that if men were angels, no government would be necessary, and that in framing a government you must first enable it to control the governed, and in the next place oblige it to control itself. A CBDC with no strict, legislated limits on what it records and does is a government that has obtained the first half of that sentence and skipped the second.

So the rule I would apply is the one the Founders applied to every new power: grant it only if you are willing to see it in the hands of your worst opponent. Ask whether you would be comfortable with a programmable dollar in the hands of every administration you can imagine, including the ones you fear. If the answer is no, then the answer is no.

For more on how the central bank fits into the system and what it is supposed to do, The Fed's dual mandate and the 1977 law that gave it two masters is a good start, and Gold standard, Friedman's rule or today's Fed, three answers compared sets out the competing ideas about what money ought to be. For the broader risk of a government that can create money to meet its needs, see Modern Monetary Theory says deficits do not matter, and 2022 answered it, and for what happens to the value of the dollar when those limits slip, inflation hurts the poor most, and the arithmetic of a fixed paycheck.

You can read the Fourth and Fifth Amendments in full on the Constitution page, and I recommend it. Read the actual words. They are shorter than any terms-of-service agreement you have clicked past this month, and a good deal more important.

The case in brief

1. A retail CBDC is a digital dollar issued directly by the central bank, which makes it different from a bank deposit (a claim on a bank), from cash (a bearer instrument no one can switch off) and from Bitcoin (issued by no one).
2. A state-run ledger of every purchase is a portrait of a life, and digital money that the state issues can be restricted, directed or made to expire. Canada's 2022 emergency account freezes show the power is real even with ordinary banks.
3. The efficiency arguments are answered by systems we already have, such as FedNow, and the privacy promises are statutory and therefore reversible, in a legal landscape where the third-party doctrine already weakens financial privacy.
4. The right protection is a law, not an executive order: a statute that bars a retail CBDC, backed by the Fourth and Fifth Amendments' insistence on privacy in papers and process before property is taken.
5. Cash is a civil liberty, the one form of money that needs no one's permission, and a free people should not let it be squeezed out.

What you can do: look up the anti-CBDC bill on Congress.gov, check its current status, and ask both of your senators in writing whether they will vote for it.