Renowned economist Paul Krugman has criticized Florida governor Ron DeSantis’s opposition to a central bank digital currency (CBDC) in a recent opinion editorial. Krugman, who follows the Keynesian school of economics, suggested that DeSantis may be motivated by “general paranoia” and that his opposition to CBDCs is not aimed at protecting the rights of Floridians, but rather, it would “protect the ability of criminals to evade taxes, launder money, buy and sell illegal drugs, and engage in extortion.” Krugman argued that if the Federal Reserve does create a CBDC, it is “highly unlikely that a state government would have the right to prohibit its use.”
The Federal Reserve is exploring the idea of a CBDC, but the U.S. does not yet have one. Krugman observed that the current financial system is already largely digital, and he finds it “bizarre” that people still use so much paper cash. He speculated that the “vast hoard of Benjamins out there is held by people who want to avoid banks’ reporting requirements in order to hide activities like tax evasion, illegal purchases of drugs and weapons, extortion and so on.” While Americans do keep a significant amount of cash “in their home safes,” Krugman believes this practice is “increasingly annoying in a digital era.”
Krugman suggested that bitcoin (BTC) attempted to achieve the goal of a cash-like digital currency, but he referenced the Federal Reserve’s 2022 analysis of cryptocurrencies. The Fed’s report stated that because crypto assets are volatile, they struggle with adoption and “make consumers vulnerable to loss, theft, and fraud.”
DeSantis’s opposition to CBDCs has been criticized as potentially hindering “un-woke activities such as tax evasion and money laundering.” Krugman argued that DeSantis may be influenced by individuals who fear a digital currency could hinder such activities. Six days after Krugman’s opinion article was published, he recounted a story about a man who was in front of his wife in line at a coffee shop and was “ranting” about how CBDCs “are going to take away our freedom.” Krugman speculated that “DeSantis is probably tied in with a broader push by monetary conspiracy theory types. This has actually been a right-wing thing for a while, even if the theories keep getting crazier.”
The potential benefits and drawbacks of a central bank digital currency are a topic of debate. Supporters argue that CBDCs could increase financial inclusion, reduce transaction costs, and combat illegal activities such as money laundering and tax evasion. Critics, on the other hand, worry about the potential for government surveillance and loss of privacy. They also argue that CBDCs could displace commercial banks and disrupt the traditional financial system.
It remains to be seen whether the Federal Reserve will create a CBDC, and if so, how it will be implemented and regulated. In the meantime, the debate over the pros and cons of a central bank digital currency continues.
