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Central Bank Digital Currency, Virtual Transactions, Distributed Ledgers and A.I
“I have read this bill, I don’t suggest that you do,” Brett Koenecke advised lawmakers.

PIERRE, SD- HB 1193 recently passed the House and will be heard in the Senate Energy and Commerce Committee this week, with little understood about the new amendments the bill proposes to the Uniform Commercial Code. In fact, during the committee hearing on HB 1193, lobbyist for the South Dakota Bankers Association, Brett Koenecke, advised lawmakers that he "doesn't suggest," reading the 117 page document. Fortunately, Rep. Scott Odenbach (R-Spearfish) and Rep. Jon Hanson (R-Sioux Falls) did read the bill and have subsequently brought to light some very serious issues.

The bill seeks to bring South Dakota "into code compliance," with the "long anticipated," 2022 amendments to the Uniform Commercial Code, according to prime sponsor Rep. Mike Stevens (R-Yanton). In order for the proposed amendments to take effect, all 50 states would need to agree to the new terms ahead of the
projected July 1, 2025 implementation date.

As outlined in the bill, the amendments and additions to article 12 would completely alter key definitions such as "money," and "electronic," while creating the legal framework for CER (Controllable Electronic Records), and incorporate a Central Bank Digital Currency into today and tomorrow's retail economies. Although the prototypical CER is bitcoin and other cryptocurrency, the new UCC Article 12 has been designed to work for technologies that have yet to be developed, providing rules intended to apply to various (currently known or unknown) intangible digital assets. Which leads us to the new definition of "Electronic" for example.

(16A) "Electronic" means "relating to technology having electrical, digital, magnetic, wireless, optical, electromagnetic, or similar capabilities." Per the commissioners who have authored the amended UCC, this language has been placed to incorporate future unknowns like A.I, bio-security and things we haven't even considered yet.

Likewise, the definition of "money," if passed, may have very broad implications for privacy, surveillance, and control. (24) "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. The term 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."

According to Edwin Smith, the Chair of the ULC (Uniform Law Commission), who currently serves as a U.S. delegate to the United Nations Commission on International Trade Law (UNCITRAL), the new amendments are needed to incorporate Central Bank Digital Currency, and have been intentionally left broad to account for future and unknown technologies. Under these new definitions things like decentralized crypto currencies could no longer constitute a medium of exchange. As concerning as it may sound to lose money due to government intervention, another more pressing concern exists for the centralization of power under the Bank for International Settlements (the global central bank).

The BIS is the policy creation hub and central bank of all central banks. According to a
survey from the Bank for International Settlements, more than 85% of central banks worldwide are researching, piloting, or in advanced stages of development of CBDCs. What's more, the BIS just announced its own CBDC with the successful trial of the global retail stablecoin known as the Aurum project, piloted in Hong Kong.

Similarly, the U.S Central Bank (Federal Reserve)
has just launched its own pilot program for FedCoin, a central bank direct currency where the money would be a liability of the Fed. However, it is unclear how CBDC bank accounts would work, given that central banks like the Fed, do not house personal bank accounts. Essentially this means all money would be in digital form, and therefore alleviate the need for third party processors like PayPal e.g.

The idea of an all digital financial system is concerning to many,
including Minnesota Congressman Tom Emmer (MN-06). Emmer introduced a bill to ensure the United States’ digital currency policy would protect financial privacy, maintain the dollar’s dominance, and cultivate innovation.

Emmer warns that "CBDCs that fail to adhere to these three basic principles could enable an entity like the Federal Reserve to mobilize itself into a retail bank, collect personally identifiable information on users, and track their transactions indefinitely,” Emmer said. “Not only would this CBDC model centralize Americans’ financial information, leaving it vulnerable to attack, but it could also be used as a surveillance tool that Americans should never tolerate from their own government.”

“Requiring users to open up an account at the Fed to access a U.S. CBDC would put the Fed on an insidious path akin to China’s digital authoritarianism,” Emmer said. “It is important to note that the Fed does not, and should not, have the authority to offer retail bank accounts. Regardless, any CBDC implemented by the Fed must be open, permissionless, and private. This means that any digital dollar must be accessible to all, transact on a blockchain that is transparent to all, and maintain the privacy elements of cash.”

In light of the heated arguments and
policy concerns outlined, the Fed has publicly stated it would await authorizing law and language prior to launching a retail coin.

“We would not proceed with [a digital dollar] without support from Congress, and I think that would ideally come in the form of an authorizing law, rather than us trying to interpret our law to enable this,” Federal Reserve Chairman Jerome Powell said. However, that hasn't stopped the Fed from launching two pilot programs to test the technology and market viability of digital dollars like "FedNow," which the Fed is calling upon financial institutions, service providers, and software companies
to adopt by next spring.

According to ULC Chair Smith, the UCC amendments are specifically required to support emerging technologies known and unknown, and the infrastructure for intangible central bank digital currency. In other words, it would appear that the Federal Reserve has found its authorizing laws and language, assuming that all 50 states agree.

With more questions about privacy, liberty and surveillance than answers, and a new UCC that essentially authorizes a monopolized or centralized digital currency without clear oversight mechanisms, several organizations in South Dakota are sounding the alarm and calling upon Gov. Kristi Noem to intervene. The South Dakota Freedom Caucus first
launched a petition last week calling attention to the issue, and the potential for misuse. That petition has since been followed by a press release by Citizens for Liberty, outlining further concerns with the amendments.

The Senate Energy and Commerce Committee has been assigned the bill, and meets on
Tuesdays and Thursday at 10am.

Editor's note- a previous version of this article contained a typo in the implementation date (July 01, 2024) and has since been updated to reflect the correct projection date of July 01, 2025.

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Post Date: 2023-02-20 10:19:59Last Update: 2023-02-22 13:30:20


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