Understanding CBDCs: Not So Funny Money
CBDCs: What they are and why you should care
Introduction
One day, you might be paid in digital currency, but it might not be the cryptocurrency you were expecting.
Central Bank Digital Currencies (CBDCs) have started to get a bit more attention recently, and rightly so, because it’s important to recognise that their implications extend far beyond the realm of Bitcoin and cryptocurrency. In fact, central banks may be leveraging the confusion surrounding these terms to their advantage.
In this short article, we’ll peer into the rabbit hole and see why it’s crucial that we all take an active interest in CBDCs and how this goes far beyond Bitcoin.
Moving Beyond Bitcoin and Crypto
When discussing CBDCs, it’s essential to separate them from the world of Bitcoin and other cryptocurrencies. While both CBDCs and cryptocurrencies operate in the digital realm, and the latter inspired the former, their underlying principles and purposes diverge significantly.
CBDCs are digital forms of fiat currency issued by central banks, while cryptocurrencies are decentralised digital assets operating outside the control of any central authority. Understanding this distinction is vital to grasp the full implications of CBDCs and their potential impact on society.
Today, the most vocal anti-CBDC group seem largely in the pro-Bitcoin camp. This isn’t surprising because, firstly, Bitcoiners have the requisite technical understanding needed to grasp how a centralised digital currency could be the ultimate tool of surveillance and subjugation, and secondly, that Bitcoin is itself emblematic of the opposite alternative; a decentralised, peer-to-peer open network running a currency with similar properties to hard cash.
It also must be pointed out that people holding Bitcoin have a vested interest in seeing their currency become a highly popular or even de-facto standard for money transfer, value storage and exchange. This adds to the difficulty in objectively weighing-up the arguments for and against CBDCs.
It’s easy to see how this confuses those on the sidelines. Millions will unlikely have yet heard of a CBDC but probably have heard of Bitcoin and, through lots of (often warranted) negative press over the years, consider the latter to be the shadier of the two.
To me at least, viewed objectively as two technologies, this seems generally the reverse. One has the kind of centralised controls we used to only hear about in China, designed-in, while Bitcoin does not.
The following is a quote from BIS General Manager Augustín Carstens. The BIS is the Bank of International Settlements, which is the bank for all the other central banks.
“The key difference with the CBDC is the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that.”
And here’s the IMF’s Deputy Managing Director, Bo Li,
“CBDC can allow government agencies and private sector players to program…targeted policy functions. By programming a CBDC, money can be precisely targeted for what people can own and what [people can do.]”
Central Bank Tactics and Confusion
The confusion surrounding Bitcoin and crypto is to the central banks advantage. By allowing the narrative to blur, they can manipulate public perception and acceptance of CBDCs. This tactic, whether deliberate or luck, can obscure the potential risks and drawbacks associated with planned centralised digital currencies issued by central authorities.
Why Take an Interest?
Recognising the importance of taking an active interest in CBDCs goes beyond the intricacies of digital currencies. Here’s why it matters:
1. Democratic Control: CBDCs have the potential to reshape the relationship between citizens and central banks. By staying informed and engaged, individuals can actively participate in discussions about the design, implementation, and implications of CBDCs. This empowers us to shape the digital currency landscape in a way that aligns with our collective interests.
2. Transparency and Accountability: CBDCs offer an opportunity to enhance transparency in government spending. By understanding how these digital currencies function and demanding safeguards against abuse, individuals can ensure that CBDCs are not used as tools for excessive surveillance or control.
3. Privacy and Data Protection: It is crucial to scrutinise the privacy and data protection measures associated with CBDCs. By being informed and voicing concerns, we can influence the implementation of CBDCs to prioritise privacy rights, data security, and individual freedoms.
4. Economic Implications: CBDCs have far-reaching economic implications. They can impact monetary policy, financial stability, and the overall financial system. By staying informed and participating in discussions about these implications, individuals can contribute to shaping a digital currency framework that supports economic resilience and inclusivity.
5. Central Bank Power: The advent of CBDCs risks concentrating significant power and influence in the hands of unelected central banks, potentially at the expense of democratic governance. As central banks take a leading role in designing and managing digital currencies, their autonomy and authority over monetary policy, financial surveillance, and data could expand unchecked without sufficient public oversight.
Privacy, Surveillance, and Erosion of Freedom
The idea of CBDCs can be unsettling, especially when it comes to our privacy and personal freedoms. The fear of increased government surveillance looms large. It’s natural to worry about the erosion of our freedom and the potential for control over our lives.
Recent events, such as Justin Trudeau’s suggestion of locking the bank accounts of protestors in Canada, only intensify these concerns. It raises questions about the misuse of power and the potential for CBDCs to be weaponised against individuals who exercise their right to protest and express dissent.
And as we all saw, the elected narcissist Donald Trump was willing to go even further to remain in power, assaulting the democratic foundations of his own country. You may think you’re a law abiding person today, but law-abiding is relative to who’s in charge tomorrow and their agenda.
Surveillance Works Both Ways
If a CBDC were unstoppable, then it must provide universal transparency. It is crucial that tax systems, governments, and politicians are open to scrutiny. With the introduction of digital currencies, we would have the opportunity to see exactly how our money is being spent.
Transparent and accountable governance is a fundamental aspect of a democratic society. A digital currency could provide us with a clearer understanding of public spending, highlight political misappropriation of public funds, and ensure transparency in financial transactions.
However, it’s essential to strike a balance between transparency and privacy. While transparency can foster trust and accountability, it’s crucial to protect individuals’ privacy rights and prevent unwarranted surveillance.
Conclusion
Understanding CBDCs goes beyond the realms of Bitcoin and cryptocurrency. It is essential to recognise that central banks may exploit the confusion surrounding these terms to their advantage.
By taking an active interest in CBDCs, individuals can safeguard the public interest, ensure transparency, protect privacy rights, and influence policy.
So, I hope this helps you rise above the confusion and actively participate in shaping the future of digital currencies. By doing so, we can ensure that CBDCs serve the collective interest, respecting our rights, and fostering a more equitable and transparent financial system.
Thanks
Luke Puplett is the founder of Zipwire, a timesheets app that gets you paid faster using WhatsApp and AI — https://zipwire.io
