Smart Republicans recognize that Kristi Noem is incompetent. Senate President Pro Tempore Lee Schoenbeck has confirmed my assessment that Noem has recruited an incompetent staff. Now longtime Republican insider and South Dakota Bankers Association President Karl Adam confirms my analysis that Governor Noem’s veto of House Bill 1193 is a complete misfire.
Under pressure from the Club for Growth and other right-wing radicals looking for a bogeyman, Noem vetoed HB 1193, a comprehensive update of the Uniform Commercial Code, under the pretense that it hurt cryptocurrency and opened the door for Uncle Sam to create an official government digital currency (“CBDC”—Central Bank Digital Currency). On SDPB last Thursday, banker and Noem-appointee Adam explained that Noem misread HB 1193. First, it would actually put cryptocurrency on a firmer legal footing:
…for all the bills that the South Dakota Bankers Association worked on and tracked this legislative session, this would’ve been the last one that we thought would’ve raised concerns not only with our legislature, across the state and certainly with our governor.
…she misinterpreted the language to specifically exclude cryptocurrency in the UCC and not define it as money. There is a reason for that. Money is a tangible or an item that you can possess. It wasn’t included in the definition of money only for UCC state law purposes. It doesn’t change the definition as it relates to the Internal Revenue Service and other things, but only for the purposes of the Uniform Commercial Code. The crypto world or the virtual currency, it’s defined as a controllable electronic record. The reason for that is the virtual currency is not able to be possessed. You can’t grab it.
Let me give you a couple of examples. If I go to a bank and request money, make an application to buy a car, a bank is able to lend me funds to buy the car and they insert their lien on a Title, a car is titled. They declare their lien on the title and that’s how they secure their security interest in that automobile. The same thing would be true if you go to your lender in requested money made application to buy a home. They insert their security interest or their mortgage on a physical mortgage based upon the physical location of that home. What this does with a controllable electronic record, since it’s not able to be possessed, again, it’s defined as a controllable electronic record or a CER. What this allows those that are looking for the opportunity to use their crypto or Bitcoin as security, that blockchain unique set of numbers that identifies that I own X number of dollars worth of or so many virtual currency coins, I can pledge that as security.
If the bank is willing to do it, they will then have the opportunity by having control of that asset to lend me money and perfect their security interest as I may use that as collateral to buy something [Karl Adam, interview with Lori Walsh, South Dakota Public Broadcasting: In the Moment, 2023.03.16].
Adam explained that HB 1193 has no effect on the ability or the intention of the United States Federal Government to develop a Central Bank Digital Currency:
UCC is state law. It is nothing to do with the federal government and the reason we’re able to do it at state law is because the UCCS been around for decades and in South Dakota since the early 1960s, and we’ve done it well, well enough so that uniform state law is the roadmap in the event of dispute arises across state lines and interstate commerce. It’s been defined because in the world there are two as we know it, and it’s fair to say that the United States government, the United States Department of Treasury has talked about a CBDC, and there is an ongoing working group about CBDC, the good, the bad, and the ugly, and they’re working on vetting that as we speak.
It’s not to say that the Uniform Commercial Code, the 2022 Amendments House Bill 1193 advances that ball. It doesn’t. If that was an issue, that will be an issue with the federal government and we’ll take that up at a later discussion, but this does not advance the ball. It’s a defined term so that we are able to modernize the code to bring digital assets into the modern world as we continue to transact business not only in South Dakota but across state lines [Adam, 2023.03.16].
Adam says that vetoing HB 1193 only disadvantages South Dakotans by restricting our ability to do business with folks who are using CBDCs:
If we don’t look to modernize this new legislation, the 2022 amendments, we will be putting our South Dakotans at a disadvantage. What the CBDC does, and her concern here is the reason it has to be defined, there’s two countries as we know it today that have a CBDC, central bank digital currency. They are the Marshall Islands. The Marshall Islands has a CBDC called the SOV, S-O-V and The Bahamas has the sand dollar. Since those two countries have a CBDC and we are in a global marketplace, should they do business here, that has to be identified in the terms [Adam, 2023.03.16].
The staunchest Noem defenders may only escape Adam’s critique of Noem’s misunderstanding of HB 1193 by suggesting that Karl is just dumping on Noem for booting his wife Joan from the Department of Health last Christmas. But no personal issues change Adam’s sober, bankerly, Republican critique of Noem’s veto of HB 1193. When it comes to HB 1193, cryptocurrency, and Central Bank Digital Currency, Noem doesn’t know what she’s talking about. She took the word of a couple press releases from radicals who blew one line in a 105-section bill into a lizard-people conspiracy theory over the well-informed explanations of the South Dakota businesspeople in her own party just to throw a little more red meat to her fans while throwing good business sense out the window.