CBDCs — A Slippery Slope?
CBDCs are inevitable.
They’re the logical, if not natural, version of today’s money.
But there’s always two sides to a single coin. So we’re reviewing a few pros and cons, to help build a better image of the underlying consequences of the adoption of Central Bank Digital Currencies.
Web3 projects aren’t the only one building during the bear market. PwC’s CBDC report states that 80% of central banks are developing or have considered CBDCs.
What are they ?
Nothing more than a digital representation of an official national currency.
The main difference resides in their use of blockchain, which leverages the numerous benefits cryptocurrencies have to offer. Obviously, the same “benefits” can suddenly become problems, depending on which side of the stick you’re holding.
Obviously, being absolute about things is rarely right, the most important aspect seems to be education and awareness around abuse, to enable the assessment of technical solutions and naturally incentivise good products to emerge.
Pros and Cons
For the sake of the article’s length, we won’t enter too much in details into every aspect of CBDC’s. Nonetheless, a few chosen points can clearly describe the dilemma.
Pros :
- Convenience (pay taxes easily and receive stimulus checks in a second)
- Low transaction costs and availability 24/7
- Instant payments
- Easily incentivise good behaviors. Like your insurance paying back a portion of your fitness membership
- Overall access expansion to financial services
- Strong accelerator for infrastructure-lacking societies
Cons :
- Dystopian intrusion into privacy, exacerbated by a cashless future
- Can be the catalyst for widespread social scores, easily shared with any government and financial institution
- Facilitates financial punishment on individuals (Kind of like what Paypal proposed a few weeks ago. This article suggests they didn’t really abandoned the idea, even after all the backlash)
- Single financial point of failure that will eventually be exploited
- Can obliterate trust in governments and precipitate some fairly stable societies into chaos
The ethical argument
Naturally, there are good arguments on both sides of the debate. And as we know, just going back and forth between valid points won’t cut it.
It might sound weird for the government, or police, to actively allow crime to happen, but that’s exactly the reality we’re leaving in. Governments have a choice to make in their approach to criminality: their crime to freedom ratio — since there’s always a trade-off between the two.
It’s counter intuitive but crime should always remain a possibility.
Another question is, what if the world isn’t ready for CBDCs ? The lack of trust in governments, added to the complexity of grasping what’s at stake, make the situation too volatile. Should governments take the risk of enabling a civil uprise to increase convenience?
Arguably, there is no objective moral. Or at least, there’s no way of being sure we’re considering the same elements in our search for morality. So we probably shouldn’t count too much on this approach.
The solution
It’s certainly not swimming against the progress stream.
What if we choose the best of both worlds? To do so, the solution might reside in the two different types of CBDC : wholesale and retail.
Wholesale CBDC : Used exclusively by banks and financial institutions. We could even expand that to corporations.
Retail CBDC : General use currency, available to individuals, destined for mass adoption and widespread use.
What if discarding retail CBDC and focusing on wholesale CBDC could enable most of the pros, while protecting individuals from the cons. Let people have their privacy — which is a fundamental right — and use a great new tool for optimising existing infrastructures.
How does that sound for a solution ?
Most importantly, because we won’t change the FED’s mind with a medium article, raising awareness around these subjects can help people make the right decision if the opportunity arises — and give arguments to those who are left without choice.
Will the governments resist the urge to control what they can ? Will you bet against Murphy’s law ? Can we have nice things ?
As always, time will tell.
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