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Abstract

This Note explores the growing wave of state-level legislation aimed at regulating Central Bank Digital Currencies (CBDCs). CBDCs, digital forms of central bank-issued money, have sparked intense political debates between proponents who see them as the logical next development in monetary technology and critics who perceive them as threats to privacy and financial system stability. Although a widely available CBDC appears unlikely without Congressional authorization, sixteen states have enacted laws designed to preempt its development, with more statutes likely to follow. These state statutes employ various legal mechanisms, including redefining terms in the Uniform Commercial Code, prohibiting CBDC-related payments to the state, banning participation in CBDC experimentation, and excluding CBDCs as legal tender.

While acknowledging the legitimate concerns raised by CBDC skeptics, this Note argues that the enacted state statutes may create new legal risks and hinder financial innovation without effectively achieving their purported objectives. The broad language of these laws may capture a wide range of non-CBDC technologies and elements of the existing financial system, such as commercial bank reserves held at the Federal Reserve. Despite their stated goals, these laws may have unintended consequences for existing financial structures, cryptocurrencies like Bitcoin, and future innovation such as wholesale CBDCs and tokenized assets. By providing a detailed analysis of these legislative efforts and their potential ramifications, this Note calls for reassessing whether these laws serve their intended purpose. This Note finishes with recommendations for both state and federal legislators to meet their stated concerns while minimizing unintended consequences for other parts of the financial system. As global interest in CBDCs rises and domestic political pressures mount, policymakers must balance their concerns with the potential benefits and risks of these novel laws.

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