I’m not going to start screaming ‘CBDC BAD’ from the top of my roof, as that would only confuse neighbours, pedestrians and innocent bystanders. I’ll let my fingers do the talking and attempt to give the topic a somewhat mature rundown!
Hopefully I do all that without forcing a power nap on dear Blockleader readers who might have no idea about those 4 letters and what actually stands behind them.
Spoiler alert – introduction of central bank digital currencies is not a direct threat to crypto, but it is certainly something you should know more about. At least so you could decide if you’re comfortable with the idea and understand what risks can come with it.
WTF Is This CBDC Thing And Why Should You Care?
CBDC doesn’t stand for cannabidiol prescription drugs, for one.
Let me be Captain Obvious for a sec… Central Bank Digital Currencies are digital currencies issued by central banks. Woah. Don’t thank me for this epic explanation!
Ok, so CBDC is a trending topic because the US Federal Reserve said they will be launching FedNow in July, a new instant payment infrastructure that allows financial institutions across the US to provide safe and efficient payment services. FedNow could also be used for government payments like stimulus checks, similar to those handed out during COVID-19.
Yeah well, that’s good, but what is the difference between mobile money and CBDCs?
Well, CBDC is considered an official form of money, just like the cash we use, but in digital form. Mobile money, on the other hand, is more like a digital representation of the money in our bank accounts. Secondly, CBDC is a liability of a central bank, the ‘bank of banks’, and mobile money is the liability of commercial banks and other authorized financial institutions.
CBDC has full trust of the government, and can be used for a variety of transactions, whereas mobile money has different security levels and its availability depends on the provider. That’s the key difference. Also, one would assume that digitizing cash and coins would reduce the costs of issuing fiat money. With CBDC we would step away from ‘printer going brr’ and take a step towards ‘computer goes beep-boop’.
See, the government introduces the whole shebang so your life would become better, and transactions would become faster. And they totally do it out of the kindness of their big heart!
Freedom, Security, Convenience – Choose Two
Sounds too good to be true? They couldn’t fool you, little trooper.
Sadly, the introduction of CBDC has little to do with what’s really best for the common folk. What they are selling is convenience in exchange for privacy, the adage as old as time itself. When you’re purchasing anything with CBDC, the Big Brother would be all over that.
“Hm, this little guy is buying mayo when he needs to pay his parking fine. Bad bad, not good!”
It sounds like a bad joke, but it’s closer to the truth than we would like to admit. Cash is king because you have some sense of financial freedom, free to sling those bills around without a helicopter parent knowing you traded paper for some candy.
But it could get even worse potentially for us, zero trust freaks!
Not only can the gov heads see what you’re taking home, they also have the power to take that digital money away from you, if they choose to, just like parents used to. Centralization is dangerous because absolute control will make it possible for the government to cut off, freeze, or even take back the money.
That’s another awesome argument in favor of my latest satirical article ‘Why You Should Totally Hook Your Kid On Crypto’…
See, this is possible in France. There’s also a function that allows to burn money as well. Poof, and they are gone like you never had them in the first place… Money can also be sector-based, meaning that it can be designated to only be spent in certain sectors or stores.
CBDCs can also be programmed to expire, so if you don’t ‘spend’ it by X date, it’s also gone.
A lot of countries are pushing CBDC’s, but the US approach is special in the context of their defamation campaign against crypto. FedNow was announced just days after the collapse and takeover of Signature Bank, which was heavy on crypto.
I don’t believe in simple coincidences, and it looks like an attempt to stifle the cryptocurrency market. The US government has little interest in what Bitcoin and other decentralized financial methods could offer as cheap, fast payments and most importantly, anti-censorship money.
So they discourage businesses from engaging with ‘shady’ crypto, roll out their own solution, and give people the fix to convenience issues.
Still, FedNow does nothing to fix the banks themselves, only making interbank transactions faster. It’s more centralized and still excludes lower classes from the banking system.
Power Corrupts And Absolute Power Corrupts Absolutely
I don’t believe that CBDC will hurt crypto, but it might hurt people’s freedoms.
For example, remember that situation when more than 200 bank accounts worth nearly $8 million were frozen when the federal government used emergency powers to end a massive protest occupation of downtown Ottawa?
Put in simple terms, having the sole control unties the government’s hands, making them a possible ‘attacker’.
Now just think about all the governments who have a stronghold on their communities. China would likely spring to mind first. Since 2014, the People’s Republic of China has been developing a digital currency called the digital yuan.
In the blink of an eye digital platforms took over payments and just about any transaction for daily life in China could be completed only using a phone. China stopped carrying wallets, and even beggars started hanging QR codes around their necks for mobile donations.
China also enforced restrictions on Bitcoin mining and crypto trading. As a result Bitcoin’s hash rate plummeted, and Chinese crypto exchanges left the country, leaving many BTC holders unsure of how the industry would recover after this move.
But despite all that, crypto is still alive and kicking…
Mother, Should I Trust The Government!?
When the government can take financial privileges away for saying ‘the wrong thing’, individuals self‐censor and exercise extreme caution.
In authoritarian societies, central bank money in digital form could become an additional instrument of government control over citizens rather than just a convenient, safe, and stable medium of exchange it is painted out to be.
Control over money creates a chilling social effect.
The government could make the digital currency disappear from the accounts of those viewed as enemies of the state. If the government doesn’t want you to own something in the decentralized space, they can prevent you from buying it and certainl
y keep you from converting to fiat. And that creates major difficulties for casual crypto adopters.
But that’s exactly why we choose Bitcoin – the damage, destruction, and inequality brought about by fiat money will only be magnified with the proliferation of CBDCs. In my opinion, the mass distribution of CBDC will not just not displace crypto, but will give it a powerful boost and an influx of new users fleeing from the total control of the central bank.
Again though, predicting the future is a mug’s game. I’m not telling you what is going to happen, but I theorize what might happen given the circumstances. After all, this is only my opinion, more of which you could find on my personal blog.
I’ll link my article about the the effect of banking crisis on crypto so it wouldn’t count as a shameless plug. And don’t you dare worry, it’s just money, right? Until next time, readers!