Viewpoint: Why CBDC is not the friend of ordinary people

Donovan Choy, the author of Liberalism Unveiled, wrote against CBDC in Bankless on June 2, 2022, arguing that CBDC is not a friend of ordinary people, or even a very bad thing.

For governments, central bank digital currencies (CBDCs) are popular — for liberals, authoritarians and oligarchs alike. A BIS survey of 81 central banks found that 90% of them are creating their own CBDCs.

The Federal Reserve also made it clear in a new executive order that the Biden administration puts “the design and deployment of a U.S. CBDC” at the “most urgent” position.

If you’re inclined to believe the local federal banker – lol – CBDC has been seen as a magic panacea that will increase financial inclusion for the unbanked, fight money laundering, improve financial stability, improve privacy, stimulate Private sector innovation, improving cross-border payments, and their ultimate goal: supporting U.S. global hegemony. 

But most goals can be massive failures. 

Unthinking observers might even see the proliferation of CBDCs as a positive sign for mainstream adoption of “crypto.” But, stripped of all the noise from power, CBDC won’t actually be anyone’s public good.

Here’s why CBDCs aren’t your friend.

CBDC = Empire Strikes Back against Cryptocurrency

While relying on similar technology, CBDCs are fundamentally different from cryptocurrencies like Bitcoin and Ethereum — in fact, they are diametrically opposed. The real motivation of CBDC is to further centralize fiat currency issuance and take the digital currency market away from cryptocurrencies.  

CBDCs exist on centralized ledgers overseen and controlled by central banking institutions and government agencies. Crypto implies decentralization, and CBDC requires central banks to consolidate control over finance.

This is not surprising. For centuries, governments have maintained their power through enforced monopolies over fiat currencies. It is politically impossible to expect central banks to voluntarily relinquish power now. Even the most minimalist CBDC implementation would result in the nationalization of an already highly politicized banking system.

For billions of people, CBDCs can be confused with cryptocurrencies, and it’s easy to see why. Both exist as digital tokens on a blockchain distributed ledger associated with a unique digital ID. 

Again: CBDC is not a cryptocurrency.  

What makes cryptocurrencies attractive? is its decentralization, immutability, transparency, scarcity and anonymity. And these are exactly the kinds of problems governments are trying to solve by building their own CBDCs.

CBDC means the end of stablecoins 

The total circulating supply of stablecoins has grown exponentially since 2021, from about $29 billion to about $155 billion today, an increase of 534%. This is because stablecoins already solve most of the problems that CBDCs are designed to solve.

Jw4SZiV3Mswv5ml8i8W3S9cSwe1KrPgcr1ct1GRi.pngTotal Stablecoin Supply – Source: The Block

Stablecoins have been dubbed the “killer app” of cryptocurrencies because of their real-world utility. For an economy ravaged by inflation, where currency devaluation is the norm, the technology has transformed the lives of citizens. This “utility” is less obvious to those of us in developed countries with financial privilege, and it is possible because a decentralized blockchain is immune to the traditional banking system. 

Millions of Nigerians, Ethiopians, Afghans, Cubans, Venezuelans, Ukrainians, etc. have gained basic economic freedom to transact precisely because stablecoins are orbiting outside the state apparatus. 

Central banks are well aware of this.

That’s why a BIS paper goes public on how CBDCs can help central banks “avoid competition from global stablecoins.” Remember: Protect their monopoly power through political coercion. This is why federal-level crypto regulation around the world will hinder stablecoins as the main crypto policy agenda. 

Enter the Dystopian Omnipotent Fiscal Prison 

CBDC designs may vary, but there are two main types: Minimalist CBDC designs, where the CBD issues the DC, mediated through a private bank account in a franchisor-franchisee relationship.

However, the maximalist model of CBDC sees the government directly issuing the CBDC and overseeing the bank accounts issued, managed and controlled by the government. Central bankers are considering this dire model and have floated the idea of ​​having the government issue “federal accounts” directly to all U.S. residents in the United States.

NV733j2esNN5iNJ0npSqF76putzKfyVEQcoq3RNL.png

Today, we are witnessing global market dislocation and inflation caused by the mismanagement of Fed monetary policy every day.

Yet, for all the problems and flaws in today’s banking system, the Fed cannot at least directly target citizens. The Fed clumsily manipulates the economy through macroeconomic leverage, but a CBDC would equip the Fed and financial institutions with precise tools to target individuals/groups.

As already evident in many CBDC designs, CBDC programmability allows governments to track the origin of money, reverse transactions, and set and revoke arbitrary rules. A CBDC would greatly empower governments to manipulate the economy in a discriminatory way.

Ryan Selkis: Elizabeth Warren wants to make your crypto wallet illegal while creating a CBDC that enables negative interest rates and full financial monitoring in your custodial crypto accounts. April 21, 2022

It is not impossible for the government to deploy CBDC in this way. They have suppressed marginalized groups, dissidents and entire nation-states (Russia). They prevent the import and export of national goods to achieve protectionist goals and impose sanctions and embargoes on countries representing hundreds of millions of people.

A maximalist CBDC “solution” would come with staggering economic costs and enormous potential for political abuse. This will require aggressive expansion and increased maintenance of the larger government bureaucracy, employing an estimated 20,000 people for KYC/AML compliance in the US private sector alone.

tolerate? Anti money laundering? privacy? ! No.    

Punk6529: This system will be the most powerful centralized control system in the world. Even Stalin and Hitler did not have the ability to implement global transaction scrutiny within their empires at the touch of a button.

Today, about 5-6% of U.S. households (about 7.1 million) remain unbanked, with the most widely cited reasons being mistrust of banks and inability to pay bank fees. A minimalist dollar CBDC mediated by private banks (thus requiring consumers to give up personal data and pay bank fees) won’t help. 

Furthermore, the case for a CBDC on anti-money laundering grounds is not strong given the powerful alternatives to cryptocurrencies. According to Chainalysis research, the volume of transactions related to criminal activity is only a small fraction of the total: only 0.15% of all crypto transactions in 2021, down from 0.62% in 2020. CBDC’s anti-money laundering argument against cryptocurrencies is a straw man.

Cash is private. Encryption is anonymous. Neither is CBDC. They seek to completely eliminate privacy and anonymity from the economy. Do you see a pattern here? Every benefit of pro-CBDC touted by politicians and bankers is at best an empty promise and at worst Orwellian doublethink.

Threats to growth and innovation

Even if one admits the startling assumption that the central bank will not use its newly acquired CBDC powers, its implementation itself will dampen economic growth.

As many economists have pointed out, with a maximalist CBDC, if Americans deposit their savings as a CBDC with the Fed, this would give the central bank unprecedented power over the liquidity/credit supply market.

The money supply in the private sector would shrink significantly, eroding banks’ biggest source of income: interest on loans. This has forced banks to raise lending rates, hurting the small businesses that rely most on these cheap loans and hampering innovation in the overall market.

Designing CBDC to be interest-free might solve this problem (or limit the amount of CBDC users can hold). But these decisions allow central banks to intervene more actively in monetary affairs, sparking a host of parasites. 

They also prevent users from saving with CBDC, and raise the question of why this is needed.

CBDC advocates want to eat cake, too, but that wonderland doesn’t exist.

This is just the beginning

Money is the grammar of all economic relationships. CBDC will accelerate the centralized encoding of the language, which cryptocurrencies are making a bold attempt to resist.

I’m hard on CBDCs, but have only just begun to scratch the surface of their problems (don’t get me started discussing the centralized cybersecurity risks and privacy concerns that accompany CBDC initiatives). 

To be sure, a CBDC could be beneficial. For example: “airdropping” fiscal stimulus to millions during the COVID pandemic is more efficient than having government bureaucracies distribute money. Perhaps the digitization of the world’s financial system can be a Trojan horse for encryption and decentralized products. 

A strong case for a CBDC must be based on a cost-benefit analysis that takes into account today’s imperfect political system, rather than picking out some potential benefits in highly unusual circumstances.

No matter how you calculate it, the costs of a CBDC far outweigh the benefits.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/viewpoint-why-cbdc-is-not-the-friend-of-ordinary-people/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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