If the development of blockchain technology was a financial revolution, central bank digital currencies (CBDCs) are its counter-revolution. Their development intensified in 2023 across the globe, and now it’s more important than ever for the world to know what might be behind the acronym.
Although some believe that central banks can be trusted to act, the facts argue against this. This technology would give central banks unprecedented control, could pose serious security risks, and is also completely unnecessary.
If you understand blockchain, you also understand the privacy dangers inherent in government-issued digital currencies. Every detail of every transaction would be made available to state regulators, such as tax authorities. In the case of the UK, the tax authority would not need additional legal powers to review every detail of every CBDC transaction.
Some might say that these powers would not be used. However, these investigative powers don’t just exist – they are used and abused. Take the Regulation of Investigative Powers Act, introduced in the UK to deal with threats from terrorism. Before long, local councils were using the new powers to spy on people walking dogs, feeding pigeons and dumping litter.
Related: UK think tank launches crusade against ‘surveillance’ CBDCs
It is also a great assumption that state regulators will be able to keep CBDC information confidential. In the UK, state agencies too often lose data – accounting for 54% of all data breach fines. Not so long ago, HM Revenue & Customs managed to lose the records of 25 million taxpayers.
But the threat of hackers is also significant. Centrally collected data will be a huge honeypot for hackers and the hostile states that support them.
As the director of Britain’s cyber-intelligence agency, the Government Communications Headquarters, has noted, a CBDC “gives a hostile state the ability to monitor transactions. This gives them the ability (…) to be able to exercise control over what is being done on these digital currencies. Acquiring CBDC data would be like hitting the jackpot for hostile states. We can also assume that hacking won’t be their only approach. For example, a recent congressional investigation revealed that Chinese agents were trying to infiltrate the US Federal Reserve.
An unelected bureaucrat saying he’s willing to trade your right to financial privacy for a surveillance-style US CBDC https://t.co/TKqpTtCNWQ
— Tom Emmer (@GOPMajorityWhip) March 3, 2023
A CBDC could also be programmed to achieve various government goals. Some central bankers want to use CBDCs to conduct monetary policy, imposing negative interest rates by withdrawing funds from CBDC accounts. Taxes may be levied at the time of transaction and purchases of certain items may be prevented or limited to support rationing. The possibilities for increased government control are endless.
A key question, asked by the House of Lords Economic Affairs Committee in a fascinating report on CBDCs, is: What problem are they actually trying to solve?
Mervyn King, former Governor of the Bank of England underline to the House of Lords earlier this month: “CBDCs are about ways to make payments; they are not a new currency. (…) What are the problems with our payment system that a CBDC could be the answer to? He concluded, “There are no problems to which a CBDC is the only answer, or even the most obvious. Our payment system is more efficient than most other countries.
Lord King exposed the emptiness of the whole campaign to create CBDCs. They are little more than a power grab by central banks, with the risks far outweighing the benefits, if any.
Proponents of CBDCs claim they would improve the efficiency of the payment system, promote financial inclusion, and make cross-border transactions easier and cheaper. What they won’t tell you is that all of these features are already available to consumers today in the form of fiat-backed stablecoins issued by private companies. Examples such as Circle’s Euro Coin (EUROC) and Poundtoken’s GBPT provide many of the same use cases as wholesale and retail CBDCs for the Eurozone and UK.
Related: CBDCs require governments to pay special attention to security
Make no mistake: central banks know this. Private stablecoins have already reached the mainstream in parts of the world such as Latin America, where local currency devaluation has led more than a third of people to make a purchase with stablecoins. International Monetary Fund economist Eswar Prasad even predicted last year that in regions facing similar problems, “national currencies issued by their central banks…could be replaced by stablecoins.”
It should come as no surprise that the recent spurt of CBDC development around the world has coincided with unprecedented scrutiny of stablecoins and legal action from government regulators.
What can we do? Above all, we must spread a better understanding of the issues, both within the political community and the general public. Let’s bring the facts to light. The best way to do this is to launch an international awareness campaign before CBDCs are established. This question is too important to be decided solely by those with vested interests, such as central banks.
Conrad Young is co-founder of Athena Labs, a global Web3 communications agency. He is a digital asset adviser to the UK think tank Tax Reform Council and its activism arm, Cut My Tax, and has worked at the intersection of blockchain and public policy throughout his career. He graduated from the University of Bristol in 2017.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
