CBDCs and defying digital control

Hey, everyone. Sean here. Welcome to Season 2 of Trust Revolution. Before we get into the episode, I wanted to let you know that I have chosen to move the primary distribution, if you will, for video and audio of the show to Fountain, Fountain.fm. The reason for that is I think it is in keeping with the mission of Trust Revolution to choose alternatives that are not the usual massive platforms like YouTube and the rest. I will still be distributing on YouTube, Substack, and others. But the real focus is on independent, good old RSS feed-driven distribution. You don't need to get into the weeds if that's not of interest to you. But what you can do is go to TrustRevolution.co, and that will take you to Fountain, where you can, and I recommend that you install their app. It is free. That will give you access to the audio and video of the show. It's an outstanding way to consume that content, to watch and listen.

It also will give you an opportunity to support the show through a subscription or through independent purchase of episodes that you can do in Bitcoin or in your local currency of choice. No ads, no sponsors for Trust Revolution. So this is a great option if you'd like to support the show and what we're doing. And with that, I'll turn it over to our first episode of season two, a great conversation with Cato Institute's Nick Anthony. Nick Anthony, welcome. Thank you for taking the time today. Thank you for having me on the show. Absolutely. Absolutely. As we were saying before we started rolling, as it were, you and I connected on Nostr, which I feel like I have the mandatory mention, X number of mentions of Nostr for every of these episodes. But it has become what Twitter was for me a long time ago, which is a great place to meet super interesting people doing important work. And so that's how we connected. And thanks again for the time today. We'll get all this, of course, into the show notes. But I think broad strokes, Nick, you are a policy analyst at the Venerable Cato Institute and specifically the CMFA, the Center for Monetary and Financial Alternatives.

I know you're also a fellow at the Human Rights Foundation where you lead the CBDC tracker, which we'll definitely talk about. And I just finished your book last week, Digital Currency or Digital Control. And I will again shamelessly plug because I did the audio book. I confess I'm a 1.7 Xer, you know, when it comes to listening speed. But it was great. And I think it was for me, I'm not an expert, but I'm fairly deep in financial services and the broader sort of matters. But I learned a ton. And I would imagine for someone new to the topic, it's going to be a great introduction. And I definitely want to dig in there. Anything I'm missing that you're working on, Nick, that we should touch on? I think you've covered the gambit. So I'll just say thank you. I appreciate all the kind words. That really does mean a lot to hear that the work is not just getting out into the world, but also being received well. Well, let's start here.

So why and when did Cato Institute start the Center for Monetary and Financial Alternatives? What's the raison d'etre of the team, of the group, of that particular program? So this is an 11-year project now. This was kicked off in 2014. Cato's history stretches back to the 70s. But around that time, there was something tangible in the air, something that we're really feeling again now, where people realize that the Federal Reserve is something that should be questioned. It should be investigated. And this investigation should take place in a way that people can actually understand on the ground. And so Cato decided to bring together leading minds like George Selgin, who was the founding director, to work on this project and to get the center off the ground to start having a critical voice, not just speaking about the dangers of central banking and what other governments have done that have gone awry, but also advocating for alternatives, whether that's Bitcoin, fintech, or anything else.

what can happen on the ground that isn't being allowed. And so it was a really crucial time to have this brought into the conversation still in the aftermath of the global financial crisis. And I think we're feeling some of those same energies in the air now with so many people interested in Bitcoin, interested in other cryptocurrencies, whether it's stable coins or otherwise, and also concerned about central bank digital currencies. So it's an ongoing history for us here at the center, but it's one that I'm very happy to see that people are asking questions like, what is money? What are central banks? Why do we have the systems that we have today? Instead of treating all those questions as just, this is the default. I turned on the game. These are the rules that were loaded in. I'll just play it to the end. Absolutely. And I think, I mean, that is my aspiration and hope and sort of the purpose for this podcast is, as I often say,

is to reach those on the bubble, to reach those who are curious, who have a sense that something is not quite right and are looking for alternatives. Those of us who are deep down whichever rabbit hole it is, Bitcoin or otherwise, you know, I think we know this, we see this, we feel it. And so So to that point, Nick, where would you say the center is directing its message? And I'll break that up perhaps into two. There are those, I presume, who are longtime supporters, followers of Cato Institute. To what degree do you feel like there is an awakening among a broader audience, new personas, new segments? So, you know, how much of that is sort of fresh blood that you're reaching? Or if you have a sense. That is such a good question. I'll say it's hard to put exact numbers on it, but I think we are reaching a lot of new people. So a lot of people out of kind of the libertarian bubble, mostly because there's so much frustration with what the Republican Party and the Democrat Party are doing.

People are asking, why isn't there something else? And here Cato has been on the ground since the 70s saying there is something else. You can look at politics differently. And so there's a lot of people, especially young people, who are looking for that alternative answer. And mind you, not all of them. In fact, I'd even say most of them are not coming to this as sudden converts, died in the wool, wanting to join up and either work here or be a libertarian full time and whatever that means for them. But they are grabbing on to specific policies and saying, OK, I might disagree with you here, but over here, there is something that we need to work on and we need to better. And I often joke about one of the fun things of this job is I can have Republicans yelling at me in the morning, Democrats loving me, and then by the afternoon it switches.

And it's definitely something you have to take, you have to roll with. But it shows me that we are breaking through these kind of walls that people hold up that say my identity is the party. That should not be the way that anyone operates. There's just too much complexity in this world to have blanket statements like that. Absolutely. And I'd like to believe here again, the aspiration that I have, among others, is the money is so very broken that it would be hard, I imagine, and in my own conversations with individuals, friends, colleagues, otherwise, that does seem to cut through a lot of the noise. And so not to lead you there, but what's your sense, Nick, of the pains that, you know, whether it is Gen Z or up, what are they feeling and what do you think they're fundamentally connecting with with regard to monetary and financial alternatives, as it were?

I think one thing they're really feeling is confusion. You have, especially on the younger side, people are seeing the value of the dollar vanish from their wallets through this last bout of inflation. People are looking to the government and seeing disorder. And people are also seeing news of things like central bank digital currencies and asking, why? Why is this happening? Why are they trying to create this brand new thing when what's currently in my hands isn't working? And so I think one of the biggest pains people feel is confusion in not knowing what's going on or understanding how the system works. And the silver lining of that is that they're asking questions and trying to figure it out. And in the process of doing so, they're seeing some of the ridiculous elements of what's going on here. It's not how I want any system to really work. I always say that I want people to use alternatives because they're better, because they're running to them, not because they're running away from something.

I don't want people to be running from hyperinflation, from capital controls, from widespread surveillance. I want it to be something that's solely better and competition is working. But what we do see across the world in the United States and abroad is that people are running away when they start asking these questions. So it's both a glass half full and a glass half empty. Right, right. Well, and that's a great segue into the topic of central bank digital currencies. And so, as we noted at the top, in addition to your work with Cato, you're a fellow at Human Rights Foundation where you lead the CBDC tracker. Would you first please tell us what that project entails and then feel free to talk at length about how CBDCs amplify the surveillance that is already embedded in systems and laws like the Bank Secrecy Act. Would love to get your take there.

Well, I'll try not to talk at length because I can talk for days about this. So please do – Well, I think it's important. Please do throw rocks at me if I'm going way too long or if you need to go to bed. So fundamentally, the Human Rights Foundation wanted to launch the CBDC tracker in about 2022. And we finally got it off the ground in 2023, noticing that this went from a few central banks and a handful of academics were considering this idea of issuing digital money to the public. But it really didn't go anywhere at first. It wasn't until 2019 that it skyrocketed. Like wildfire covering the brush, it all of a sudden spread across the world where central bankers, policymakers, and even some think tanks were arguing there needs to be this new invention of money, creating a direct connection between the central bank or the government at large and citizens. And what, Nick, was happening, what happened in 2019 that led to that spike in interest in activity?

The fundamental thing in my eyes is the announcement of the Libra white paper from Facebook, or now Meta. And so it's about, I believe it was June or July of the summer of 2019, they introduced it. And you can see in interviews all across the internet where policymakers were saying this can't happen and we need to introduce something to compete with it to stomp it out. Because they were worried that while Bitcoin had been around for years at this point, they saw Facebook as leveraging its user base to all of a sudden create global adoption, whereas Bitcoin had not achieved that at that level. And so that was really the catalyst. And I really suggest people look at just the Google Trends data showing CBDC interest. And you'll see right after that summer, it spikes like crazy. It goes straight to the moon, as it were. And that's when we really realized something needed to be done. Something needed to be done to track what these central banks are doing. What is the progress? What are they looking at? How are they thinking about it?

But then also inserting the human rights perspective on this. So whenever somebody looks at a country page in the CBDC tracker, they'll also see specific human rights and civil liberties concerns that relate to the possible issuance of a CBDC. So often there's many things wrong with some of these countries, but I limit it to those that like issues of surveillance or corruption so that people can get an idea of what might happen if they move forward with a CBDC. And as it stands, the tracker now has 139 different jurisdictions. These are ranging from autonomous regions to city states to countries to currency unions and the like. And it's across every continent now where countries are really pushing forward. And one just thing that can't be denied or rather is just abundantly noticeable when you just open up the page and see the map is that it's predominantly authoritarian regimes that have launched CBDCs and are moving forward.

Seven out of the 10 countries that have launched a CBDC are autocracies. And unfortunately, that's really no surprise because these are the same countries that have leveraged the financial system as a tool of control to control the opposition, to block media outlets, to stop protests by freezing bank accounts and controlling funds. A CBDC really is what takes that type of mass control to the next level. Absolutely. It's a force multiplier. Exactly. That's a great way to put it. Because right now, the system, another way to think of it is the system might be like at an 80% danger level, and this is taking it to that 100% level. Yeah And when I was struck I had followed the project for some time and checked in last week at the you know it easy to everybody points to China and we talk about perhaps China and Nigeria and others but when you filter on research the map lights up And so I delighted to say

that the United States thus far, you know, I always remain skeptical, but is not in that sort of column or category. But there are so many countries in the research phase. Well, from there, Nick, let's talk about, to your point, for those who are not familiar, how do CBDCs amplify surveillance? Why are they so appealing to authoritarian regimes? And then perhaps, you know, we'll talk about the EU, for example. Whether they're an authoritarian regime, maybe that's up for debate. But, you know, they're seen to be sensible, I think, by a lot of the populace. And so, you know, there's the autocracies and perhaps, you know, let's look at the EU as some middle ground. Well, first, let me back up just a little bit and talk about financial privacy and what financial information tells about us. And in fact, a little bit of homework for all of your listeners is to look at bank statements, credit card statements, debit card statements.

And while you should be looking at the numbers to keep a balanced budget, look at the memo lines and look at what that information says about you. Maybe it says where you stop to fuel up your car, where you've paid tolls on your commute, where you get lunch. Largely mundane things that paint a picture of where you're traveling. Maybe it shows the causes you donate to, revealing your political affiliation, your religion, or your other beliefs. And maybe it shows something that you wanted to keep deeply private, maybe a medical condition. All of these things can be revealed by our financial information. And so our financial privacy is deeply important. And it's something that gets lost because really it's kind of buried behind bank statements where you're mostly concerned about the number. It's not this hot thing where you see the surveillance camera on the street staring at you.

It's in the background. It's in the weeds. But for governments, they do recognize that this is a useful tool. They can track down protesters who traveled into the city. They can track people who might be funding the opposition group. And so where CBDCs take things to the next level is that currently, in most cases, a government will have to go knock on the door of your bank. Say, I want NICS records. And they'll give it to them, but they'll at least go through the compliance checks, make sure they're only getting what they're supposed to, make sure that everything is above board. And there'll at least be a little bit of a delay in this process. The problem with the CBDC, however, is we're talking about all of those records being in the hands of governments by default. So no more knocking on the door of the bank. No more air gap in between you and the government.

Everything is there by default. And that also means it's not just the records that they asked for that they're getting. They're getting everything across the board. We're talking about trillions upon trillions of records, and that's vastly different than what we currently have. And that's a treasure trove for especially authoritarian regimes who want to figure out new ways to control their populations, because what a great data set. on social media, people post about what they're doing, but people lie all the time. They want to look cool. They want to sound like they have the amazing job. They want to be able to strut back into the high school reunion. But when it comes to where we put our money, those are revealed preferences. You're not lying about that. You might tell people on Facebook that you just spent two months in Cabo. But when you look at the bank statement, you're going to see, oh, yeah, You went down to the local pool and we're hanging out there.

So it's deeply concerning from those grounds that it opens up that door to have mass data collection on deeply personal information that really reveals who we are at the core. And then with that data in hand, it opens up to issues of control. How do they use that data? And just to give you one example is probably one of the biggest concerns with CBDC control is programmability in terms of identifying certain circumstances where one example I often give is people have said central banks can allow programmability so that kids can't buy too much candy. Well, what is candy for adults but alcohol? So limiting the amount of alcohol you purchase or maybe making it more complex. If you've bought a parking ticket to park in a garage, then if you buy a drink, all of a sudden it's shut down onto the idea that you might be drinking and driving.

I think a lot of people might actually like that idea. But then when you start carrying it forward, you realize this gets into dangerous territory quite quickly. If you have a particular grain agenda, why not limit beef? And that gets into the problem of no matter who you like in government, they are not there forever. If you have concerns about the other side, the other side will eventually be in power. And you need to ask, do you want them to have those capabilities? And I think, tell me if I am wrong, but I, as you were saying, and it's something I've certainly paid attention to for quite a while, and I think most of us feel this intuitively, is perhaps second to or maybe even more than healthcare information, that, broadly speaking, the data set of our transactions would be the most sensitive and would be the richest if someone wanted to turn it against us. Is that fair to say?

I think that's absolutely right. And it's really a sad state of affairs that that needs to be yelled from the rooftops. It should be one of those things, just like you said, like our health care formation, that we know to treat privately, to maintain control over and to actively give consent where needed to allow it to be used. But instead, most people have no idea that any of this is going on. A few years ago here at the Cato Institute, we surveyed people across the country. I think about it was a representative sample of Americans, about 2000 people. And the vast majority of them, they said it would be unreasonable for the government to have access to their financial information. And yet, at the same time, the vast majority of them believed that the Fourth Amendment protected them, that they had a right to privacy. And I hate to be the one to rain on the parade, but that has not been the case for a very long time.

Well, and then this perhaps we're working backwards toward ground truth. But – and again, wonderfully covered in your book, Nick. Talk to us a bit about the double trouble of the Bank Secrecy Act and third-party doctrine, if you would, please. Well, maybe to kick things off, I do have to apologize to anyone that thinks the Bank Secrecy Act has anything to do with protecting their secrecy. Unfortunately, it's quite the opposite. This is a piece of legislation from the 1970s that has been amended and updated since then, where basically financial institutions, banks, credit unions, even pawn shops and casinos are forced to act as law enforcement investigators. They've been deputized on behalf of the government, and they have to report certain transactions. Just to give you an idea, there was about 27.5 million reports filed last year. The vast majority of those, I think it was about 20 plus million of those, were filed for nothing more than a cash transaction of $10,000 or more.

And the whole purpose of this is supposed to be finding money launderers, terrorists, other illegal activity. But the vast majority of this reporting is for nothing more than just people did something strange. They suddenly did something abnormal. For example, maybe you suddenly paid $2,000 to someone and you don't usually do that. And the problem is the banks don't see that you had a pipe burst in your basement and you needed an emergency plumber to come in. From their perspective, this is suspicious. It seems kind of weird. And so instead of getting fined themselves for not reporting it, they report it to the government and it goes on its way. Now, this regime caught a lot of attention when it first got off the ground. And luckily, there were groups, both bankers and even the ACLU at the time, had challenged it in court, and it made its way to the Supreme Court.

The idea that sharing this information ran contrary to the idea that we use passwords for our financial information. We close the door when we meet with our banker. We shred our financial statements. Of course, we think that this is private and want to keep it secure. Unfortunately, the Supreme Court created what is now known as the third-party doctrine, as you mentioned, where if you share information with a third party, in this case the bank or credit union, then you can no longer expect that information to be kept private. And with that single blow, the Fourth Amendment fell apart severely. All of a sudden, that those concerns or those beliefs that people have today that the Fourth Amendment protects their information was unraveled because the courts decided that, no, it doesn't apply here anymore. People can't have a reasonable expectation of privacy.

And this has created a huge regime. It spread to other countries as well, where we see similar reporting requirements, all in the name of fighting, to be fair, bad things like terrorism. And yet, when we look at the results, it's just not getting there. I've been following this for years. My colleagues have been following it for even longer. And the agency in charge of maintaining this, the Financial Crimes Enforcement Network, or FinCEN, has really struggled to prove that this is something that's actually stopping crime. We finally got some numbers on this in the past few years where they say about 13% of IRS criminal cases start with a Bank Secrecy Act report. But if we think about that in context, 13% is roughly equal to just shy of 400 reports.

So that means 27.5 million reports were filed. Banks spent upwards of $60 billion filing that in terms of compliance, and yet the IRS was only able to initiate about 400 investigations off of that. That is a sad state of affairs. over. Pardon me. I think I did the math. I should have made a note, but I think we're talking over $150 million per investigation initiated. I mean, and it is a testament, Nick, to your control and polish to say basically that the results are dubious. The results are horrible. And I think, you know, and you went exactly to my next question, which is, and I would recommend everyone read this piece, reporting FinCEN's suspicious activity again. And I think, tell me otherwise, but the takeaway, the major takeaway is the, I think I misspoke on Noster and

said tax dollars, but I should have said our bank fees, you know, a lot of that $60 billion dollars undoubtedly is being reflected in our charges and bank fees to generate incredibly questionable results. And I don't know if you would have any visibility to of those 370 reports or investigations rather initiated how many resulted in penalties or arrests. Any insights there? I've been asking that question for years. I bet you have. Sadly, no. But that is, I mean, that's the $59 billion question is how many of these are starting an investigation? So we at least got that. How many are resulting in an actual court case where somebody was arrested? And how many are resulting in convictions? And it really doesn't look good, at least in terms of the IRS side.

One thing I'll quickly add, though, is it's not just the bank fees. It's also in terms of the debanking phenomenon that people have seen. It's people being denied access because they seem too risky and banks don't want to invest in this. Unfortunately, this is me coming at it as a cold-hearted economist, but I see people get upset with how the financial system isn't fair because some billionaire had a bunch of currency transaction reports or other Bank Secrecy Act reports filed on them, and they were able to keep their account. but maybe a small business had their account shut down. And unfortunately, the cold math of it is that banks can afford to do it. When you're rich and you're bringing in tons of money, they can turn a blind eye on the cost of compliance. But when you're a normal person or an average person, those compliance costs stack up and eventually push comes to shove.

And they say we don want to do business with you anymore because it not viable Or if it somebody who is on the lower end of the income spectrum and they see that maybe they don have a formal job and it looks like they might have issues with having to file these reports they say it not worth opening the account And that's such a backward state of affairs that we're not catching criminals, and instead we're penalizing everyday people in terms of both the effects to their wallets and also to their civil liberties. Absolutely. It's just wrong from start to finish. And I think, you know, that is along with 2 percent inflation is good and taxes, you know, there are all these indoctrinated myths or indoctrinations that we come up with. And I know many people believe in earnest that these regulations, these laws, these entire regimes to say nothing of the Financial Action Task Force, if you have thoughts there, by all means.

I know, you know, we exchanged a bit about my previous interview with Open State, the pseudonymous civil servant who is inside one of these regulatory regimes. It is remarkable the degree to which they are demonstrably ineffective or, you know, to be a bit more generous that they have failed to produce data or findings that would demonstrate that they are effective. And to that end, I'm thinking about Open State's remark that in order to repeal the Bank Secrecy Act, that as he put it, I believe the United States, for example, would have to settle its account with FATF. Any insights on the viability, any initiatives to amend, to repeal, to rein in the Bank Secrecy Act or related, Nick? There are quite a few initiatives underway right now, and Open State's right that it's complicated, especially when you get into the international side of it.

In terms of what Congress is doing, right now, I believe Senator Mike Lee out of Utah and also Representative John Rose out of Tennessee in both the House and Senate have legislation that has been introduced both last Congress and this Congress to dramatically reform the Bank Secrecy Act. It's not a full repeal, but the general approach that both of them take is that this regime can be separated into kind of two buckets. So on one side, you have the record keeping requirements. Financial institutions need to keep X, Y, and Z on their customers and keep those records for a certain amount of years. And then on the other side, you have they need to report customers in certain circumstances. So those are the currency transaction reports, the suspicious activity reports. Activity, SARS, right. Yep. What their legislation does is gets rid of the reporting side.

So no longer will financial institutions be reporting their customers, but they'll still be keeping kind of a standardized record-keeping system. And they've gone that route to try to thread the needle on making something that is politically feasible while also having a dramatic reform in terms of how it works on the ground. And that's really exciting, though, because this is something that's been going on for over 50 years now. And this is probably the biggest challenge that has been introduced in Congress in a very long time. And it has a chance to get somewhere. But it's also really exciting because we're actually having this conversation in the first place. And it's something that Americans on the ground. Yeah. Right. Americans on the ground are noticing this more and more. It really kicked off. It's funny. We talked about CBDC is kicking off with the Lieber conversation and kind of the inverse.

Financial privacy has become more into common focus after the Biden administration proposed surveilling accounts at six hundred dollars. Absolutely. Absolutely. Absolutely. And it's well, and I think I take your point that certainly that's progress. And if I understand then, Nick, what would happen, as many would say, is rather than financial institutions, as you put it, being deputized into this extra legal, extra judicial enforcement arm, law enforcement would have to go fish. They would have to go to the institution, request records now. One could probably argue that that's trivial and the banks will just turn them over wholesale. But at least there is that extra step, that extra friction. Do you feel like that's a fair characterization? Yeah, there's one other side of it, though, because that is a really good point. And that's there also needs to be a strengthening. And I'm sorry, I can't recall exactly now if it's in both pieces of legislation. But there needs to be a strengthening of what's called the Right to Financial Privacy Act.

This was a piece of legislation from 1978. Very briefly, as the name suggests, it was supposed to establish a right to financial privacy, and it was born out of concerns of the third-party doctrine in the Bank Secrecy Act. Congress stepped in and said, maybe this will get out of hand. How do we kind of set some guardrails on this? And so they said, to get financial information, the government needs to get a warrant. This is great. That's perfect. Well, the problem was, at the very end, they include a list of exceptions. There's more than 20 exceptions that are for things like the Bank Secrecy Act or for the IRS or for if there's a national emergency or maybe if someone's in danger. There's all these exceptions provided that basically boil down to all the reasons that the government would want your financial information. And so what Congress needs to do as well is not just at the very least get rid of the reporting side, but also strengthen the Right to Financial Privacy Act so that a warrant is required across the board.

So that if they want the information, that's fine. Just do an investigation, prove that it's useful, go to a judge, substantiate it, get the warrant, then go get it. That's how we balance the rights of citizens with the investigations conducted by law enforcement. The Fourth Amendment struck a very clean balance on that, and that's what we need to restore here because otherwise you're absolutely right. There are going to be cases where law enforcement just walks in and says, hey, we really need this. We'd hate to have to look into you deeper or to tell your financial regulator that they should be checking up on you because you're uncooperative, something we've seen in the past. So there needs to be quite a few reforms done. It's all within reason, though. It can be achieved. It's just a matter of creating the momentum to achieve it. And I think, you know, that is – I take heart in this sort of broader conversation that regrettably it is because of egregious violations of individuals' rights and liberties, but that the average individual, so-called, I think, is seeing more of this.

They're interacting more with financial institutions, which will nebulously decline because, oh, by the way, they're forbidden by law from disclosing to you why they've closed your account or why they've submitted a SAR if they have. Well, let me ask you this then, Nick. Given everything we've discussed and given the data to back it up, this is not just a couple of libertarians ranting about the desire to see smaller government, though let us not leave that aside. Who is advocating and why for the continued application of regimes, regulatory regimes, which are by any reasonable measure ineffective? Who wants this to continue and what are their incentives in your view? All right. So let me split this in two groups, although they're very closely connected. The first one is maybe the most obvious, and that's law enforcement. Since the beginning, law enforcement has been arguing in favor of expanding this regime.

And I don't blame them. Again, looking at this as a cold-hearted economist, I see the incentives. They want as much information as they could possibly have. In fact, there have been times where they've come out and said, getting a warrant is too hard. It takes too much time. They don't want to do it. And I'm not really sympathetic to that. But I do understand the incentives that they face and why they want to do that. They want to have access to everything so they can act faster. From my viewpoint, the Fourth Amendment, again, was put in place for a reason. The founders saw what general access could do, whether it was in England or in the colonies, where people would come in and just tear houses apart and look for anything that might incriminate someone. They saw how government abuse could take place, especially with an aggressive government.

So that's one side of it. The other side is closely connected, but it comes at it from a slightly different lens, where I mentioned before that there's this $59 billion of compliance with the Bank Secrecy Act. Well, there's also a regime that is getting – or sorry, not a regime, an industry that is getting that money. There's people who are taking certification courses. They're going to conferences. They're selling books. They're selling training manuals and study guides and an entire workforce that is behind this. I mean, one example of how almost cronyist this is or entrenched this is is a lot of times when banks get fined for Bank Secrecy Act violations, it's because they don't have enough employees to work on the compliance team. And so you have a lot of people here who, again, I think come from it with good intentions.

Absolutely. Many of them. I worked alongside many of them. And a lot of times it's former law enforcement or former military and they see this as, I can continue to fight terrorists, cartels, and worse by working within the bank. And I'd even give them more of the benefit of the doubt than the law enforcement side of it because they also don't see where this goes. So they're left to assume only the good of I caught this suspicious activity and I flagged it to the powers of being. Dispatched the report and that's all I know. And that was a good day. Right. I think we're seeing more folks like Open State and others who are starting to notice that something is a little awry here. They're noticing that, especially with the broader financial privacy conversation, that people don't really want this to be the norm. They don't want this to be the default system.

And so there's a few people who are speaking out. But again, the incentives are much more in the favor of those who have built careers off of this or who benefit solely off of having this mass information collection. Right. And that makes good sense. Either make my job easier or let me keep my job because this is what I've been doing for all of my career or a significant portion of it. If we – I'm thinking about those, Nick, who may be more on the progressive left-leaning side who will not perhaps respond to our previous – my previous remarks about libertarian perspectives. But all kidding aside, I mean, what is your message – not to say that you need to be the voice to this – but what is your message to those who are left-leaning, those who do for good and earnest reasons want to see these regimes do what they claim to do?

I definitely sympathize with people who, regardless of the political spectrum, who want to see this be successful because ultimately they're saying nothing more than they want the bad guys to get caught. And I agree with that. I want people who are violating the rights of others, who are hurting other people, who are causing destruction to this world to be stopped. If I'm going to frame it, though, specifically within the progressive side, I think there's two things that I would suggest to people to look at. And the first one is what we've already talked about in terms of whether or not it's actually doing that. So whether or not this is actually stopping the bad guys is important because then we need to look at the costs. And it's not just – although Republicans often get the most airtime for saying tracking guns or tracking other things that are typically considered Republican values, it's also tracking people who are donating to social causes.

Whether that's Black Lives Matter, whether that's a homeless shelter or something else, it's also tracking those as well. And people get caught up in this just as much. A few years ago, which now actually almost feels like a lifetime ago, when the Capitol riots, insurrection or protests happened, one of the things that happened after that was the FBI asked Bank of America for financial data on people who were around there. And I was so frustrated with this because they kept reporting in the media that they were asking for things like memos, bankline memos that involved the words Trump, Cabela's, Bible, and things that were like associated with right-leaning values. values. But what they didn't mention as much is in the same list of flagged items were left-leaning

politicians like Nancy Pelosi were of concern. And so they were also looking at Democrats who were in the area And that was something that was really missing from the story And I don think anyone on either side should be having their privacy violated like that where they tracked whether you going to a church or a mosque whether you going to a health clinic a homeless shelter Or a protest. Or a protest. It just shouldn't be that way. And the last thing I would say is the tools that are built here in the United States have ricochets across the world, have ripples across the world. The tools that are built here, even if they're not abused, become quickly abused in authoritarian regimes. And sadly, we've seen that story too many times. I'll paraphrase poorly, but any tool is a weapon if you hold it right.

Sadly. That's a good thing to keep in mind. And if I recall, and you may have touched on this in one of your pieces or I perhaps read it elsewhere, is that most recently, and just to sort of wrap up on this note, the Bondi DOJ was requesting financial transactions within a certain range of the border. I know Border and Customs has this 100-mile moat, which is a whole other conversation. But if I understood transactions as small as $200. Yeah. Well, it's even worse than that, frankly. So this was a kind of amendment to the currency transaction report. So that $10,000 report we were talking about, they decided that they wanted to take a closer look at the border. And so in 30 zip codes in Texas and California, the requirement was dropped from $10,000 to $200 at money service businesses. So this is like Western Union or RIA transfer trying to send a run.

Right, right. And I was almost in shock. I thought this must be a typo. Something can't be right here. And yet this is exactly what was put forth where they were specifically targeting people living along the border, trying to find people with relationships across the border. They framed it as they're doing this where they're targeting terrorists and which are rather they're targeting cartels, which they recently named as terrorists. And I look at this, though, and all I can see is all the businesses that are not going to be able to stay above water because of it. And eventually, that's exactly what they said. Some of the businesses operating there spoke to the press about it and said, we're either going to have to shut down or move because what was filing, say, seven reports in a week was going to become 20,000, 30,000, 40,000 reports in a week.

And they don't have the staff to do that. Nor is it. Yeah. Yeah. Well, anyway. I'm not. I just have to stress. I'm not exaggerating with those numbers. That is exactly how they estimated it would increase. And that is a crime in and of itself. Luckily, the folks at the Institute for Justice stepped in here. They challenged it and got together with other groups, challenged it in both states. And the regime has been frozen right now until they figure out exactly what's going on. And luckily, on top of that, one of the cases, the judge has already said, this is absurd. This cannot move forward. And so hopefully it'll be shut down before any of those reports actually have to be filed. But it's a perfect example of the Biden administration tried to levy a surveillance regime at $600 in our bank accounts. And now the Trump administration is trying to levy a surveillance regime at $200 transactions.

They have some fine lines between the two, but in the end, it really shows that no matter who's in power, there are problems at hand and abuse can quickly unfold. And it's why we need to limit the powers of government so that these abuses do not take place. There might be one angel that rises to power, but they're never guaranteed to be there forever. Well said. Well said. And I think that is absolutely what I wish to underscore is that regardless of where you are on any political spectrum, regardless of who's in power, this is dangerous. And I'd love to shift, Nick, to then what can we do? And so in your book, you talk broadly about the risks of digital money controlled by governments. And I think you set a nice backdrop to eventually land on CBDCs. Whether it is Bitcoin, I know the Cato Institute proper maybe has some varying views and you can speak in an official or unofficial capacity.

But whether it's Bitcoin or otherwise, what can individuals do to rebalance that power, to reclaim a bit of privacy for themselves? And perhaps how can they become part of a bigger voice, a louder voice to change the tide? Well, the first step really to that is, frankly, exactly what you're doing right now in having these conversations. So I very much thank you for that again. I appreciate that. It's really important. I can't underscore it enough, though, that having conversations about this is so important. Like I mentioned earlier, when here at the Cato Institute, we surveyed the public. Most people believe the Fourth Amendment protects their financial activity, and that's not true. So having conversations and raising awareness around this is the first step into making sure people know there is something worth fighting. Something worth fighting against. Because if they don't know, then it's just going to happen without our set.

The next step, though, I think is then understanding what the alternatives are. So things like Bitcoin and even going deeper with what Calais is building with eCash, what Lea Petrasova is building with Vexel, or even further outside of the currency space in what Naomi Brockwell has built with NBTV to raise awareness on privacy generally. Raising awareness about these alternatives is really important because it's so much harder to embrace alternatives when your freedoms have been taken away. It's so much harder to build those platforms when your freedoms have been taken away. When we can't even have this conversation, it doesn't happen. It's too late. And so right now, it's hard because for a lot of people, the system works. They tap their card, they tap their phone, they pull out cash and coins, and it's seamless.

It works. They don't really need to think about the alternatives. Why do I need to learn how to use a hot wallet versus a cold wallet? Why do I need to learn what hashing is? But right now is the time to learn it. And it is the time to spread it to others and teach them so that we have those escape hatches at the ready. We have those bunkers at the ready. Nobody wants to be building a blast bunker while you see the mushroom cloud going off. And I hate to be that extreme, but it really is the core of this because, again, otherwise you end up wishing you had after the fact. And so the third thing aside from that, so the first is to raise awareness about just the state of affairs right now. The second is to understand, use and embrace alternatives, whether you need them or not. And then the third thing is to just keep a close eye on what your government is doing.

Because at the Human Rights Foundation, we try to track what everyone is doing across right now, 139 jurisdictions. So there's many sleepless nights behind the tracker. No doubt. But there's nothing more valuable than people in the – or on the ground, on the street, being the person on the spot, as Hayek would say, to understand what's going on and to make sure that our leaders are being held accountable by making their voices heard about what they do and don't want. That's how we create a different future. And that's how we get off of this path that we've been on with the past 50 years or really more than that of ever-expanding surveillance. Thank you for that. And I would love to follow up just a bit. Correct me if I'm wrong, Cato's work, your work is predominantly focused at the federal level, the national level. Any insights on what individuals can do at the state or local level, understanding that these regimes are almost without exception federal?

So it's really tricky at the state level. I've done a little bit of work on this area, mostly because I get that question all the time is the state level is the level at which you can make change from the ground up. But it's hard because this is a federal regime that kind of umbrellas around that. For the CBDC side of things, I think one thing that has struck a good balance in terms of approaching it is making it so that there's legislation in place that prohibits the state government from using a CBDC in terms of spending, taxation, or otherwise. And that's a way that you're not restricting the rights of citizens. You're also not running afoul of the federal level, but you're also planting in the ground that the state is objecting to this. The state is protesting this.

And I think that's a good approach to it. You're diminishing utility in a way, right? You're saying, look, the feds may implement this, but at the state level, the utility will be greatly diminished. Exactly. And it's tough because I know a lot of great state organizations want to go in guns blazing because this has become such a concerning topic. But we also have to balance it to make sure that we're not creating unintended consequences by doing that as well. Patchwork quilt of state legislation. Unfortunately, the nuclear option is not a very good option and it's not a good option across the board in any circumstance. Fair, fair. Well, as we wrap up, Nick, what will we look forward to from the center or perhaps from you over the coming months? What are sort of areas of focus for your work? Oh, gosh, there's quite a few.

One thing right off the bat is we've been rolling out a new series on reforming the Federal Reserve. So it's tackling one paper per subject area of what the Federal Reserve does. The audit's coming, right? Yes. So that's one of the things in there. I just put out a paper on this specifically in terms of the payment system. So how the Fed is involved in terms of clearing and settlement and showing how it's, over time, pulled that out of the private sector and taken over it and how we return it to the private sector. Another thing that is unfortunately always coming out is updates to the CBDC tracker because there are constantly things going on. And I just made updates to Belarus, Iran, India, Nigeria, Kenya, and the Eurozone in the past two weeks.

Would you say – perhaps difficult to measure quantitatively or qualitatively – would you say interest is accelerating? How would you characterize the trajectory of CBDCs globally? I think that's a tough question because I think activity is accelerating, but interest is waning. And I say that because you have a lot of jurisdictions that got to the pilot phase in what was kind of a CBDC rush of sorts leading from 2019 to 2022. But in 2022, around right when we launched the tracker, global concern really erupted. You had more people speaking out, more people voicing their concerns. And so there's been a sharp decrease in sentiment and a sharp decrease in almost excitement among central bankers because so many people are so worried about this.

And so while they're still working on it, it doesn't have quite the glitz and glamour that it once had. And I very much agree. And I'll say maybe a positive note. Kenya and the central bank has recognized this and specifically said that they're pausing their work because they've yet to identify what problem this solves. And the allure across the world is fading. And so that is very much good news. It's just unfortunate that so many central bankers are still barreling forward, the EU being a notable one or rather the European Central Bank being a notable one. They have announced that they are not launching a CBDC in October of this year, but they will be ready to do so. Ligard, I believe, has spoken to and bragged about their readiness. Yes. They were actually just in parliament this past week and trying to get members of parliament to agree to sign off on it because they want them to sign off so that they can go off with it.

But that's going to be a little bit of a tense time. Once October hits, that's when they're quote unquote officially ready and then they'll just be waiting on the green light from parliament. So we will look to our neighbors across the ocean as an unfortunate bellwether. Well, Nick, thank you so much. I've learned a great deal. I'm sure everyone will. We'll get all the relevant links in the podcast notes because they're great resources. I hope we can do this again soon. Yes, please. I'm happy to chat anytime. As I said before, I can talk about this issue for days. So just say the word. It is deeply important. Thanks so much, Nick. Talk soon. You're welcome. Thank you. Bye-bye. Bye. Thank you.