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For those who don’t know, this wonderous new development is essentially digital coins issued by a central bank that are pegged to a country’s fiat currency (government-issued physical money). Basically, a stablecoin for banks and businesses.
According to Juniper Research, the value of payments via CBDCs will reach $213 billion a year by 2030. That value currently stands at $100 million in 2023. That’s a 260,000% increase in seven years, to put that in some sort of perspective.
This latest iteration of money, a system humans conjured up in around 3,000 BC in Sumer, according to Yuval Noah Harari (coins date back to around 650 to 600 BC), is currently being explored by nine out of ten central banks across the world in some form or another.
For governments, the appeal is clear. No cash, no organised crime. But no cash also means no privacy. For governments, that may not be a big deal. For the rest of us, it should be a major concern.
According to the International Monetary Fund (IMF), CBDCs could “accumulate sensitive payment and user data at an unprecedented scale”. This data could be used to “spy on citizens’ private transactions, obtain security-sensitive details about individuals and organisations, and even steal money”. Wow, if the IMF is concerned…
And privacy is not the only thing CBDCs could do away with. The freedom to buy, sell and travel could all be curtailed with this technology infrastructure. In theory, a central bank or government would have all the tools necessary to “switch off” someone’s ability to spend money. This sort of ‘programmable money’ should be a concern to all.
Penny for your thoughts?
The Digital Pound Foundation’s operational and governance lead and chief risk officer (CRO), Claire Conby, says: “As both public and private sector research and explorations continue to delve into the design principles and attributes of these new forms of digital money, there is one topic that repeatedly raises its head as a core discussion point – and, for many, an essential feature: privacy.”
Unlike cash, digital payments leave a breadcrumb trail. “The potential for personal information connected to this activity to be made available beyond its intended use leads to significant privacy concerns,” Conby says.
Many people will no doubt prefer to keep their personal and potentially sensitive or revealing spending information anonymous. They may also have concerns around commercial data-sharing and the monetisation of their data, as well as potential discrimination and unfair business practices that can occur as a result.
“From a government’s perspective, part of the value in implementing a CBDC lies in the ability to better manage and use data about transactions and users for more effective policy delivery,” Conby says, such as reducing financial crime through enhanced anti-money laundering (AML) measures, or improving their ability to monitor the effectiveness of benefits and other interventions.
But while these benefits will be prized by governments, Conby says “competing concerns and interests raise the question of whether it is possible the same level of anonymity that is afforded by cash can also be achieved in the design of a CBDC, and whether user concerns around privacy can be balanced with government imperatives and objectives”. My guess: probably not.
A scenario in which CBDCs reign supreme but cash is still allowed seems far-fetched. When cash has no utility other than for illicit or nefarious activities, you can bet your bottom digital dollar governments will outlaw it.
“If cash were invented today, it would be illegal,” believes Oliver Linch, CEO of Bittrex Global, the world’s oldest crypto exchange.