Kevin Warsh, financial executive and former Federal Reserve governor, is now reportedly among the top contenders being considered to replace Jerome Powell as Fed chairman.

Although Powell’s term doesn’t end until May, and it doesn’t look for now like Trump will oust him before then, Treasury Secretary Scott Bessent has said that there’s a “very good chance” that President Trump will pick before Christmas his choice for a nominee to be  Powell’s successor. Other reports say Trump will announce the pick in January

Warsh has been a successful financier and has some perceptive ideas on fighting inflation and creating conditions for economic growth. But Warsh’s endorsement of certain forms of a central bank digital currency (CBDC) place him in opposition to Trump, Republicans in Congress, and numerous conservative and free-market public policy groups.

A CBDC is a digital form of a nation’s fiat money, backed by the central bank and acting as a direct liability of the government. In 2018, Warsh penned a Wall Street Journal op-ed proposing a CBDC in the form of a “digital dollar” backed by the Fed. Warsh wrote that the Fed “might prudently consider introducing its own digital currency to gain the benefits of innovation without sanctioning the illicit behavior that bitcoin and its brethren have attracted.”

As I replied in a letter to the WSJ in response to Warsh’s op-ed, “such a move would be harmful on many levels.” I expressed concerns about inflation and crowding out innovative private cryptocurrencies.

A far greater concern with CBDCs would soon emerge regarding their role in an expanded surveillance state. As Ari Patinkin and I wrote in RealClearMarkets: “Unlike paper or a private decentralized digital currency, a CBDC leaves an electronic trail of purchases and sales within a government digital ledger. Ledgers of such information are in the hands of governments that in many cases have a dark history of abuses of civil liberties.”

Even in democratic countries such as the US, recent data breaches and weaponized leaks of personal information highlight the potential for abuse.

As presidential candidate in 2024, Donald Trump opposed the creation of a CBDC. Upon becoming president he issued an executive order prohibiting US government agencies from “undertaking any action to establish, issue, or promote CBDCs within the jurisdiction of the United States or abroad.”

But there is a question as to whether this executive order would apply to the Fed, as the Fed currently has a status as an “independent agency.” Once confirmed, a Fed chairman could likely pursue a CBDC if he or she wished, unless Congress specifically banned it. So the views on the issue of a potential Fed chair such as Warsh very much matter.

More recently, Warsh has written that he is now only in favor of the creation of a “wholesale” CBDC that – in his words in a 2022 WSJ op-ed – would be used “exclusively for wholesale transactions” including “payments among the government, financial firms and foreign central banks.” He argues that such a CBDC would enable faster payments and settlements, making the dollar more competitive.

Avik Roy, chairman of the Foundation for Research on Equal Opportunity, counters that “Warsh’s ‘guardrail’ protecting consumers from CBDC surveillance and censorship is about as strong as a sheet of Kleenex.” He explains that “once an American CBDC is live, all it would take is a flick of a legal switch to bring it to every user of the U.S. dollar.” As for the dollar’s competitiveness, Roy argues that privately issued dollar-backed stable coins could due more to boost it than US currency ever could.

Given the opposition to CBDCs from President Trump and as well as from many folks with concerns that range from inflation to privacy and civil liberties, any nominee for Fed chairman should be thoroughly vetted regarding his or her views on this issue.