An executive order issued on January 23, 2025, aims at protecting “Americans from the risks of Central Bank Digital Currencies (CBDCs), which threaten the stability of the financial system, individual privacy, and the sovereignty of the United States, including by prohibiting the establishment, issuance, circulation, and use of a CBDC within the jurisdiction of the United States.”

The executive order defines CBDC as “a form of digital money or monetary value, denominated in the national unit of account, that is a direct liability of the central bank.”

As (a reader of) Matt Levine’s newsletter points out, the two statements combined have wide ranging implications. Reserves, which are issued by the Fed and which banks use to pay each other, are a form of digital money; they are denominated in the national unit of account; and they are a direct liability of the central bank. So, their issuance and use is prohibited now. This would mean the end of the monetary architecture as we know it. Or, the executive order was just not carefully drafted.

Unlike in the executive order, retail CBDC is typically defined as “reserves for all,” that is digital; in the national unit of account; a direct liability of the Fed; and ACCESSIBLE TO EVERYBODY rather than just banks. Prohibiting CBDC as typically understood would not be as wide ranging, but still not necessarily a good idea. As Morten Bech has pointed out, CBDC = MM0GA or

CBDC = make M0 great again.

HT to Beatrice Weder di Mauro.