If the development of blockchain technology is a financial revolution, central bank digital currencies (CBDCs) are a counter-revolution. The development is increasing in 2023 all over the world, and now more than ever it is important for the world to know what is behind the acronym.
While there are some who think central banks can be trusted to continue, the reality is against them. This technology will give central banks unprecedented control, potentially posing serious and unnecessary security risks.
If you understand blockchain, you also understand the privacy dangers inherent in government-issued digital currencies. Every detail of every transaction will be available to state regulators, such as tax authorities. In the case of the UK, the tax agency does not need additional legal powers to review all the details of each CBDC transaction.
Some may say that the power will never be used. However, this investigative power does not just exist – it is used and abused. Take the Investigatory Powers Act, introduced in the UK to deal with the threat of terrorism. Soon, local councils used new powers to spy on people walking dogs, feeding pigeons and littering.
related: UK think tank launches crusade against CBDC ‘surveillance’
It is also a big assumption that state regulators will be able to keep CBDC information confidential. In the UK, state agencies often lose data – accounting for 54% of all data breach fines. Not long ago, HM Revenue & Customs managed to lose a record 25 million taxpayers.
But the threat from hackers is also important. Centrally collected data will become a huge honeypot for hackers and the hostile countries that support them.
As the director of Britain’s cyber intelligence agency, the Government Communications Headquarters, commented, CBDC “gives hostile countries the ability to monitor transactions. It gives people the ability […] in order to be in control of what is done with that digital currency. Obtaining CBDC data would be like hitting the jackpot for a hostile country. We can also assume that hacking is not the only approach. For example, a recent congressional investigation revealed that Chinese agents tried to hack the United States Federal Reserve.
Unelected bureaucrats expressing willingness to trade financial privacy rights for US CBDC style surveillance https://t.co/TKqpTtCNWQ
– Tom Emmer (@GOPMajorityWhip) March 3, 2023
A CBDC can also be programmed to achieve various government goals. Some central banks want to use CBDC to conduct monetary policy, implementing negative interest rates by taking funds from CBDC accounts. Taxes can be imposed at the point of transaction, and the purchase of certain goods can be prevented or restricted to support rationing. The possibilities for increasing government control are endless.
The main question, asked by the House of Lords Economic Affairs Committee in an interesting report on CBDC, is: What problems are they actually trying to solve?
Former Bank of England Governor Mervyn King pointed out in the House of Lords earlier this month: “CBDCs are about a way to make payments; they are not a new currency. […] What are the problems in payment systems that CBDC could be the answer to? He concluded, “There is no problem that is the only CBDC, or most obviously, the answer. Our payment system is more efficient than in most other countries.
Lord King exposed the hollowness of the whole drive to create CBDCs. They are little more than holding power by central banks, with greater risks than benefits, even if they exist.
Proponents of CBDC argue that it will improve the efficiency of payment systems, improve financial inclusion, and make cross-border transactions easier and cheaper. What they won’t tell you is that all these features are already offered 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: CBDC requires governments to focus exclusively on security
Make no mistake: Central banks know this. Private stablecoins have become mainstream in parts of the world such as Latin America, where the devaluation of the local currency has caused more than a third of people to buy stablecoins. International Monetary Fund economist Eswar Prasad even predicted last year that in the region facing the same problem, “the national currency issued by the central bank. […] can be replaced by stablecoins.
It should come as no surprise that the push for new CBDC development around the world has coincided with unprecedented stablecoin scrutiny and legal action from government regulators.
What can we do? Above all, we need to spread a greater understanding of these issues, in the policy community and the general public. Let’s face the facts. The best way to do this is through an international awareness campaign that takes place before the CBDC is introduced. This matter is too important to be decided only by stakeholders, such as the central bank.
Conrad Young is a co-founder of Athena Labs, a global Web3 communications agency. He is a digital asset advisor at UK think tank the 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 information purposes and is not intended and should not be construed as legal or investment advice. The views, thoughts and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.