Florida and Indiana Pass Laws Banning the Use of a CBDC as Money in the State

Laws recently enacted in Florida and Indiana ban the use of a central bank digital currency (CBDC) as money in those states.

These laws explicitly exclude a CBDC from the definition of money in Florida and Indiana, effectively banning its use as such in these states.

FLORIDA

In Florida, Rep. Wyman Duggan filed Senate Bill 7054 (S7054)  after Gov. Ron DeSantis called for legislation banning CBDC in the Sunshine State.

“Today’s announcement will protect Florida consumers and businesses from the reckless adoption of a ‘centralized digital dollar’ which will stifle innovation and promote government-sanctioned surveillance. Florida will not side with economic central planners; we will not adopt policies that threaten personal economic freedom and security,” DeSantis said in an official statement calling for the ban.

The law defines central bank digital currency as a “digital medium of exchange, or digital monetary unit of account issued by the United States Federal Reserve System, a federal agency, a foreign government, a foreign central bank, or a foreign reserve system that is made directly available to a consumer by such entities” and that is “processed or validated directly by such entities.”

Under the Florida Uniform Commercial Code (UCC), “money” means a medium of exchange that is 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.”

S7054 adds “the term does not include a central bank digital currency” to that definition.

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.’”

With the enactment of S7054, the UCC is no longer uniform.

The House passed S7054 by a vote of 116-1. The bill passed the Senate by a 34-5 vote. With Gov.DeSantis’s signature, the law will go into effect on July 1.

INDIANA

The provisions in the new Indiana law signed by Gov. Eric Holcomb are almost identical, but the bill took a very different path to enactment.

Sen. Chris Garten and a bipartisan coalition of 11 cosponsors introduced Senate Bill 468 (SB468) in January. The law makes a number of changes to Indiana’s Uniform Commercial Code (UCC).

As originally introduced, the revised definition of money in SB468 would have paved the way for the use of CBDCs in Indiana.

“The term [money] does not include an electronic record that is a medium of exchange recorded and transferable in a system that existed and operated for the medium of exchange before the medium of exchange was authorized or adopted by the government.”

This proposed definition would have also banned free-market-based cryptocurrencies, such as Bitcoin, from being considered money under state law.

Thanks to strong grassroots opposition, the language was amended during the legislative process. The amended definition of money in the final version of SB468 explicitly excludes CBDCs from the definition of money.

And while the new definition does not include free-market cryptocurrencies in the definition of money, it doesn’t specifically exclude them either. As one policy analyst explained, SB468 is neutral about the use of private cryptocurrencies – they are neither regarded as money nor are they banned either. In effect, as passed, SB468 maintains the status quo as it related to free-market crypto.

The House passed the final version of SB468 by a 95-2 vote. The Senate approved the measure by a 46-0 vote. With Gov. Holcomb’s signature, the law goes into effect on July 1, 2023.

IN PRACTICE

How such legislation would 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 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. The national ID scheme is already 17 years late on full implementation because a significant number of states have decided not to participate, or in some cases, just provided 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 the way this legislation to oppose a CBDC would play out, and it’s part of James Madison’s four-step blueprint for how states can stop federal programs. Passage 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. Additionally, the UCC itself generally deals mostly with transactions involving personal or “movable” property, and not real or “immovable” property.

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 central bank 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.

Several countries are already experimenting with CBDC, including Nigeria and China.

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.

The Tenth Amendment Center contributed to this report.