You Need to Know About These Huge Dangers From CBDCs Noone Sees Coming
As talks of CBDCs are on the rise, it is important that more people hear about this yet another form of control governments will want to use.
What exactly is a Central Bank Digital Currency (CBDC)?
In short, a CBDC is virtual money backed and issued by a central bank. Instead of printing money, the central bank issues digital coins or accounts backed by the full faith and credit of the government.
Consumers and businesses can use CBDCs to make daily transactions without intermediaries. Financial institutions, namely banks, can exchange CBDCs, making global transactions faster.
- 114 countries, representing over 95 percent of global GDP, are exploring a CBDC
- 11 countries have fully launched a digital currency, and China’s pilot, which reaches 260 million people, is set to expand to most of the country in 2023.
- As of December 2022, all G7 economies have now moved into the development stage of a CBDC.
- 18 of the G20 countries are now in the advanced stage of CBDC development.
- In 2023, over 20 countries will take significant steps towards piloting a CBDC. Australia, Thailand, Brazil, India, South Korea and Russia intend to continue or begin pilot testing in 2023.
90% of surveyed central banks are exploring CBDCs
— Bureau of Industry and Security (BIS)
But don’t digital currencies already exist?
There are already thousands of digital currencies. These are known to all of us as cryptocurrencies. Bitcoin is the most well-known fully decentralized cryptocurrency.
Stablecoins are another type of cryptocurrency whose value is equivalent to an asset or a fiat currency like the dollar.
Cryptocurrencies run on distributed-ledger technology. Multiple devices all over the world are constantly verifying the accuracy of the transaction.
But this is different from a central bank (one central hub) issuing a digital currency.
CBDCs Vs Cryptocurrencies
First and foremost, CBDCs are centralized, while cryptocurrencies are decentralized in nature. The first is controlled by the government, while the latter is, preferably, not controlled by any person or authority.
Bitcoin, for example, is governed by software run on thousands of nodes, which verify any transaction. The rules were set, and those who may desire to change them will need to do the impossible: control the majority of the network.
This means that no matter what anybody wants, there will only be 21 million bitcoins. Also, new “money”, bitcoin, is created with the help of a consensus algorithm at a steady rate.
Since the supply of bitcoin is finite and its demand is rising, we know that its value is going to steadily rise too. Thanks for that, Satoshi Nakamoto.
A CBDC, on the other hand, is issued and backed by the central bank of a country, and its value is equivalent to the country’s currency.
As you may know, the dollar, like every other fiat currency, is steadily losing value. The governments’ monetary policies (unstoppable money printing) and the currencies’ theoretical infinite supply made sure of that.
Let’s stop backing our currency by a physical commodity like gold. "I am sure this would be a great idea" they thought.
This way, we can create money out of thin air. And one day our currency’s value will be close to that of a piece of paper. But who cares.
CBDCs will follow the same fate.
Though, that doesn’t mean that CBDCs don’t have some advantages over fiat money.
So why would a government get into digital currencies?
As cryptocurrencies and stablecoins have become more popular, the world’s central banks have realized that they need to provide an alternative—or let the future of money pass them by.
There are many reasons to explore digital currencies, and the incentives of different countries for issuing CBDCs depend on their economic circumstances. Some common incentives are:
- Promoting financial inclusion by providing easy and safer access to money for unbanked and underbanked populations. In the U.S. alone, 5% of adults do not have a bank account
- Introducing competition and flexibility in the domestic payments market, which might need incentives to provide cheaper and better access to money
- Increasing efficiency in payments and lowering transaction costs
- Creating programmable money and improving transparency in money flows
- Providing for the smooth and easy flow of monetary policy.
Is it only me, or do most of these problems seem like they can be solved by cryptocurrencies?
The problem with cryptocurrencies though, is that they take control away from governments.
Let’s talk about the dangers
Say goodbye to your financial privacy
Unlike paper money, a CBDC would offer neither the privacy protections nor the finality that cash provides.
Distributed-Ledger Technologies (DLTs) give a full record of all the transactions. Some governments, such as China, which is known for its extensive surveillance mechanisms, will potentially want to use this financial information to keep tighter tabs on their citizens.
We don’t know who’s using a $100 bill today and we don’t know who’s using a 1,000 peso bill today.
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.
— BIS General Manager Augustin Cartens
You will be financially controlled — No money, no power
The threat to freedom that a CBDC could pose is closely related to its threat to privacy.
The true definition of Financial Freedom is the ability to transact when you want with whoever you want and for however much you want — Guy from Coin Bureau
With so much data in hand, a CBDC would provide countless opportunities for the government to control citizens’ financial activity.
How might such financial control occur?
Freezing or seizing of assets:
Governments have long recognized that freezing someone’s financial resources is one of the most effective ways to lock them out of society.
However, a CBDC could make the process easier and faster for governments by establishing a direct line between citizens and the government itself.
They will be able to freeze your CBDC whenever they feel it’s justified.
Programmable spending:
The programming capabilities of a CBDC could mean that people would be prohibited from buying certain goods or limited in how much they might purchase.
For example, policymakers could try to curb drinking by limiting nightly alcohol purchases or prohibiting purchases for people with alcohol related offenses.
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.]
— IMF Deputy Managing Director Bo Li
Negative interest rates:
While interest rates are typically thought of in terms of positive rates, a CBDC could allow policymakers to also set negative rates. In effect, a negative interest rate would result in people losing money. Proponents argue that this strategy could be implemented to spur spending.
Undermining of markets and cryptocurrency
A CBDC could undermine both the foundation and future of financial markets by reducing credit availability, disintermediating banks, and challenging the rise of cryptocurrency.
Centralized storing of financial information
Another concern is the centralized storage of financial information.
Where an IRS breach puts all 331 million Americans at risk, a breach at a private financial institution would only affect a fraction of citizens, leaving customers at other banks free of harm.
Cyberattacks
Consider a cyberattack on two different kinds of networks.
The first one targets the bitcoin network. Since the network is decentralized, it remains functional even if one computer is compromised by a hack.
Next, contrast that with an attack on the CBDC network. Since all transactions go through a central authority, if it is compromised by an attack, the entire network will be disabled.
Due to these fundamental threats, many policy analysts, industry representatives, and even government officials themselves are pushing back against CBDCs.
We would not want a world in which the government sees, in real time, every money transfer that anyone makes with a CBDC.
— Federal Reserve Chair Jerome Powell
At some point, a CBDC that fails to provide a high degree of financial privacy will be used to monitor and censor the transactions of one’s political enemies. It is foolish to think otherwise.
— William Luther, American Institute for Economic Research
In a fully implemented CBDC system, governments could financially exclude individuals or entire groups of people with the press of a button, leaving them with nothing. Governments like the CCP could target dissidents, sexual minorities, ethnic minorities, or religious minorities. If banknotes don’t exist and access to government‐issued digital cash is revoked, then they are truly helpless.
— Alex Gladstein, Human Rights Foundation
Conclusion
In short, CBDCs try to mimic what cryptocurrencies already do, but with different incentives.
Cryptocurrencies give more power to the people, while CBDCs give more power to the government against the people.
A CBDC would fail to offer the benefits its proponents suggest, threaten financial privacy and financial freedom, and undermine the banking and cryptocurrency industries.
Let’s hope that, for the sake of the people, their plans won’t go any further.
In any case, the best we can do is be prepared. That means we must spread awareness. educate people about the potential of cryptocurrencies (and about crypto ponzi schemes), and raise adoption to stay protected against any method of control.
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