Central banks currencies are coming whether we want them or not. Should you be worried about CBDCs?


In countries around the world, central bank digital currencies (CBDCs) are poised to change the way average citizens use money. In the coming decade, billions of people are likely to use CBDCs—a new type of currency run on a centralized ledger—to do everything from pay taxes to buy groceries to receive welfare checks.

Once seen as a technology of the future, CBDCs—along with other digital payment innovations—garnered new attention during the pandemic as governments explored how they might better exchange money with banks and consumers. But unlike Bitcoin and other private cryptocurrencies that promote ideals of decentralization, CBDCs are intended to leave the state very much in control.

Already, the U.S. is moving forward with tests of CBDCs, the UK is hiring a Head of Central Bank Digital Currency and testing out a digital pound, and China has launched its version of CBDCs in the real world. We are closer than ever to a world of centralized digital currencies reshaping the financial sector. This raises the question of whether we are entering a new era of financial efficiency or, as critics fear, one of dystopian surveillance. 

What is a CBDC? And who is creating them?

A CBDC is a new form of digital currency created, issued, and controlled by a central bank such as The Federal Reserve. 

Digital payments that we use today (i.e. Venmo, CashApp, etc.) are typically a liability of the institution providing the account—often utilizing commercial banks—whereas CBDCs are directly a liability of the central bank, not too dissimilar from physical cash. However, unlike cash, CBDCs equip the central bank with more direct tools to monitor and control the economy.

It’s helpful to realize that, in discussions of CBDCs, there are two proposed uses: retail and wholesale. The latter is simply an improvement on the current system that enables banks to send money to each other—which shouldn’t affect the average citizen much. On the other hand, CBDCs in the case of retail entail ordinary consumers interacting directly with a central bank ledger to conduct everyday transactions. This offers the potential for cheaper and faster payments, including for things like government stimulus or social programs, but also poses new types of risks.

The most obvious of these risks relates to privacy. At a time when public confidence in government and institutions is at an ebb worldwide, there are legitimate fears that authorities may use CBDCs for new forms of surveillance and control. 

Central banks could freeze the accounts of actors opposing the country’s agenda—such as when Canada froze the accounts of protesting truckers. Or even prevent you from purchasing junk food if they deem your diet to be too unhealthy.

Nonetheless, 114 countries—which represent 95% of global GDP—are exploring a CBDC (according to Atlantic Council). Of those 114, 57% are in the research or development stage, 16% are piloting, and 10% have launched their CBDC.

While the U.S. and Europe are still exploring the potential deployment of CBDCs, China, and India have already deployed their own versions in the real economy, while Nigeria and Jamaica have likewise launched projects of their own.

“The reason we are seeing diverging approaches on CBDCs is due to each country considering its own unique country context, economic model, and social constructs when seeking to advance a CBDC,” Gabriella Kusz, CEO of the Global Digital Asset and Cryptocurrency Association said. 

While each country has its unique societal challenges, every major power wants to at least dip its toes into the waters of digital currency due to the fear of being left behind.

“You could call it FOMO or you could call it geopolitics,” Kusz told Fortune. “Some of this is about positioning, ensuring that they are included in where the world is going.”

Are CBDCs too dangerous?

The idea of central banks using programmable currency to flex control over how citizens spend their money feels dystopian. But not all CBDCs will have such limitless capabilities.

Johnathan McCollum is at the forefront of efforts to create a CBDC in the U.S. As Chair of Federal Government Relations for Davidoff Hutcher & Citron, McCollum works closely with members of Congress to help amend federal laws for America to move towards a safe digital currency.

“Privacy is a primary concern here in the U.S.,” McCollum told Fortune. “I think a lot of those things are really spelled out in our financial laws. There are protections for individuals that need to be transferred if we move forward to a digital form of money.”

He specifically points to the protections laid out in the Privacy Act of 1974 and the Federal Information Security Management Act of 2002 to be applied to digital currency.

“People don’t want the government to look at their banking information and their transactions,” McCollum said. “I think that it’s important that we use intermediaries, so a CBDC would function in the same way that cash does through commercial banks and different payment providers.”

In authoritarian China, meanwhile, there are unsurprisingly fewer concerns about privacy.

Zennon Kapron, director at Kapronasia, has been focused on helping organizations strategize around the implementation of CBDCs in Asia. He’s seen how the pilot of China’s e-CNY has been received by the public.

“In a place like China, where privacy protections haven’t always been there, there’s probably been a little bit more acceptance that the government is going to look at [your] transactions.” Kapron told Fortune, “but in many markets, that’s not the case.”

Another complaint about CBDCs is the level of IT literacy that may be required to use this new financial system. However, governments are adapting to their population’s abilities to spur adoption.

In the case of China’s e-CNY, the mobile app will allow you to pay for transactions via QR code—a similar system to AliPay which has 1.2 billion Chinese users. A card payment system is now also being trialed, which works like contactless debit cards, with the potential to merge with national IDs in the future.

“One of the biggest challenges was user habits. They’ve tried the carrot approach, in pilot areas, where they had lotteries for people that were using it,” Kapron said. “Eventually, to really get the long tail of people adopting CBDCs, it’ll have to be the stick to move people over. China is in a good position to do that, they’ll tell people ‘this is the future, we’re eliminating cash, and you must use your ID’.”

The U.S. doesn’t have the same history of digital finance and combined with the nation’s skepticism of CBDCs due to privacy concerns, the transition won’t be so smooth. 

CBDCs have the potential to escalate privacy, control, and tech adoption issues but there are workarounds for it. The technology isn’t inherently evil but do we trust our central banks to not take advantage of this opportunity?

“To me, there’s a question of ‘who should be making the decisions about currency?’ And historically, people made pretty independent decisions about what currencies to use,” Christopher Anoma, co-founder of Anoma, told Fortune. “Recently we’ve moved to a world where control over issue and surveillance of payments is more and more centralized. Not only is it sort of concerning, but it’s also kind of incompatible with democracy.”

Anoma, who is well-known for developing the communication protocol behind Cosmos (IBC), suggests that democracy isn’t legitimized by our electoral votes every four years but by our everyday choices to support different businesses, currencies, etc.

When CBDCs are rolled out, be conscious that your use of them is a vote of confidence for the new standard of digital currency. If you aren’t more aware of where you place your votes, our financial democracy could end up being a financial dictatorship controlled by our central banks.


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