CBDCs Are a Threat, But Are They Also a Pipe Dream?
We discussed the Bitcoin Policy Institute’s excellent white paper earlier this week on the problems presented by a Federal Reserve central bank digital currency. Bitcoinist dives a little deeper on two key issues that BPI addressed, and raises an interesting point. They argue that the idea of a CBDC is inherently dangerous and unfit for a free, capitalist society. They are, we agree, an authoritarian’s dream tool.
But at the same time, Bitcoinist argues, CBDCs may just be a pipe dream.
To set up the scene, The Bitcoin Policy Institute’s report goes to why central banks are against bitcoin:
“For evident reasons, central banks have been ambivalent–at best–about Bitcoin. They sense in some of its functions a potential existential threat: Bitcoin has automated the issuance and transaction of hard money, calling into question the role of central banks in economic life.”
Under a bitcoin standard, central banks are obsoleted. On the other hand, if the US creates a CBDC they would be kings of the castle. The center of the whole system. Which sounds good to them, until you include the private banks’ factor.
“CBDCs are digital cash–digital versions of paper banknotes. Because cash is issued by central banks, CBDCs enable consumers to have direct relationships with central banks rather than relying on commercial banks to serve as intermediaries between the two.”
The first question is, will private banks go out without a fight? The second one is, would a CBDC standard also wipe out the whole financial system? What happens to lending and borrowing, for example? Are central banks equipped to absorb every service that commercial banks offer?
“With both the imposition of CBDCs and the elimination of physical cash, the ability to anonymously transact will also be eliminated. This destruction of the last remnants of financial privacy is touted by governments as necessary to prevent financial crimes.”
Putting aside how ineffective KYC and AML procedures are in actually preventing crimes, there’s the fact that privacy is a human right. And, as The Bitcoin Policy Institute puts it, “those calling for the rollout of a CBDC are naïve to believe that this can be done without establishing a centralized surveillance system for all financial transacting.” The function is so trivial to add that it would be an element of CBDCs whether we want it or not.
Slightly switching topics, The Bitcoin Policy Institute presents another obstacle to CBDCs. This one would be hard to admit for governments everywhere, but It does make all the sense in the world.
“A CBDC requires a robust, highly secure, extremely reliable, and regularly-updated technical infrastructure to implement and maintain. To date, governments–even in the software-forward countries of the United States and the United Kingdom–have demonstrated that the design, delivery, and maintenance of software is not their strength.”
Are governments going to become technology providers all of a sudden? While at the same time absorbing all of the commercial banks’ functions? That just doesn’t seem feasible. And the affected institutions won’t take it sitting down. Are CBDCs a pipe dream then? Maybe they are.