For central banks—institutions that deal with monetary policy—control is the most crucial aspect of their operations. In the absence of legislation, it is impossible to reduce the power of a central bank. Any attempt to do so can result in unpleasant consequences for people who want to protect their level of personal freedom. Cryptocurrencies which, due to their blockchain technology, stand in opposition to the control of the individual. Crypto has made a revolution in such areas as privacy and security. So, how do we explain why central banks are considering introducing token-based fiat currencies that are compatible with digital wallets? Will this innovation mean a reduced level of central bank control? It turns out that the effects of any such proposed change are complex, which we will explain in this article.
The implications of the introduction of Central Bank Digital Currencies (CBDCs)
At first glance, we might think that the introduction of CBDCs is a positive step in reducing errors in banking systems and accelerating a reduction in transaction execution time. You could send large amounts of money while reducing transaction fees. Transfers would then be made 24 hours a day, every day, instead of being limited to the working hours of banks. Sounds optimistic? Not really. Just as electronic CUSIP numbers have described fiat money in centralized databases in the US and Canada, the same can apply to token-based currencies.
The introduction of CBDCs is one of the greatest threats against human rights in history
Let’s analyze what dangers would result in introducing CBDCs. The first of them is personalized inflation. As mentioned before, central banks have the power to increase the money supply and adjust interest rates. The changes they make affect everyone equally. Central bank digital currencies could change the ways individuals are affected. A centralized institution could adjust monetary policy individually. The inflation rate could operate on an algorithm similar to personalized advertising in Google. The variables would be, for example, place of residence, occupation, shopping history, and others. One person could have a higher inflation rate to encourage them to spend money (since goods are getting more expensive, it makes sense to buy them earlier), while another person could have a lower rate (analogically).
Another thread that could occur is financial censorship. When CBDCs gain wide adoption, the central bank could take control in deciding with whom you can transact. This power would be controlled remotely. Bankers would be able to see your account balance, who you are transacting with, and any other details that attract their interest. Such power takes away individual privacy and gives central banks the ability to control your operations.
Now discuss another possible aspect of introducing a CBDCs—a social credit system. This system would be a punishment and reward system for people’s actions. For example, if the government wants to influence people’s health, it can punish you for your bad habits of unhealthy eating or smoking. The possibilities of disciplining depend entirely on the fantasies of the idea’s creator. If the government decides that they want to prevent you from gambling at a casino, they could block the purchase of a ticket for public transport going to the casino. While this possibility may sound abstract, comparable initiatives are being debated in England and Canada. China has a system that is already in operation.
Let’s move on – money expiration. Bankers attempting to make the circulation of money increase the tempo can resort to money expiration. If you don’t spend your money within a certain period, it will expire. The U.S. already has benefit programs such as Electronic Benefits Transfer (EBT) cards used for the Supplemental Nutrition Assistance Program (SNAP). Any unused funds in an EBT card expire after a year. This approach could be applied on a wider scale with the introduction of the CBDCs.
The fight for freedom persists
Privacy is a fundamental human right that can conflict with the goals of central banks in seeking more control over economic activity. The goal of control creates another front in the fight to preserve privacy and freedom that goes hand in hand with technological progress. We need to take care of ourselves and our financial independence. It is important to raise awareness of the possible new restrictions CBDCs may place upon us. The goal is to function in and does not take away basic human privileges.