Hawaii Bill Would Take Steps Against a Central Bank Digital Currency

by Mike Maharrey, Tenth Amendment Center, Jan 25, 2024

HONOLULU, Hawaii (Jan. 25, 2024) – A bill introduced in the Hawaii Senate would take steps to limit the impact of central bank digital currency (CBDC) in Hawaii, creating potentially significant roadblocks to its use in the state.

Rep. Lynn Decoite introduced Senate Bill 2676 (SB2676) on Jan. 19. The legislation would take several steps “to protect a person’s right to choose whether to participate in a digital currency system and to ensure that the people of the State are not coerced into adopting digital currencies against their will.”

In effect, it would create a favorable environment for people in Hawaii to opt out of using CBDC.

Under the proposed law, “Every person shall have the right to choose whether to participate in a digital currency system and shall retain the freedom to transact and store value using traditional fiat currency, physical cash, or any other legal means of payment.”

It would specifically bar the state from requiring the use of a CBDC.

“No government entity shall mandate or coerce a person into adopting or using a digital currency against the person’s will.  The State shall not require a person to possess or use digital currency in any financial transaction, tax payment, or other legal obligation.  No government entity shall deny a person access to a public service, benefit, or protected right solely based on the person’s non-participation in a digital currency system.”

This is similar to an Alabama law passed in the 2023 legislative session.

The legislation also declares, “A person who chooses not to participate in a digital currency system shall not be subject to additional surveillance, monitoring, or scrutiny by any government entity.  The State shall ensure the privacy and security of a person’s financial transactions and personal information regardless of the person’s participation in a digital currency system.”

IN PRACTICE

In the spirit of James Madison’s blueprint in Federalist #46, the enactment of SB2676 would create “impediments” to the implementation of a CBDC in Hawaii and open the door for individuals to opt out. Madison said “a refusal to cooperate with officers of the union” along with “the embarrassments created by legislative devices,” would “oppose, in any State, difficulties not to be despised.”

How such legislation will play out in practice against a CBDC, should the federal government attempt to implement one, is unknown.

Opponents of the legislation 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.

In the ramp-up to the 1996 vote on Proposition 215 in California, 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 situation has played out in response to the REAL ID Act of 2005, already 17 years late on full implementation because a significant number of states have decided not to participate, or in some cases, just provide residents with a choice to opt out. There, federal officials have confirmed that state-level roadblocks to implementation are the primary reason for the continuing delays.

“Roadblock” is likely the way this legislation to oppose a CBDC could play out.  Passage of either bill would put limits on the use of CBDC in the state, and SB826’s provisions removing central bank digital currency from the definition of money 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, 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 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

At the time of this report, SB2676 had not been referred to a committee. Once it gets a committee assignment, it must get a hearing and then pass by a majority vote before moving forward in the legislative process.