CBDCs: A Trojan Horse for Invasive Financial Control? Blockchain Leaders must Take a Stand.
Summary:
This article discusses the potential risks and impacts of Central Bank Digital Currencies (CBDCs), which offer governments unparalleled control over money. It highlights how, although CBDCs are lauded by some institutions and blockchain leaders, they fundamentally threaten the principles of decentralization and individual financial privacy. The author warns that CBDCs could set a trajectory towards heightened governmental control, even in democratic societies. A call is made for blockchain and crypto leaders to resist CBDCs and instead, advocate for decentralization and the innate capabilities of cryptocurrencies.
Digital currencies issued by central banks (CBDCs) provide governments with unbounded control over money. Such currencies should ideally be opposed by all blockchain proponents for this reason, yet that is not always the situation. Back in 2023, the International Monetary Fund (IMF) acknowledged that the majority of cryptocurrency advances stem from the private sector but commended central banks for adapting by experimenting with CBDCs, developing state-owned instant payment mechanisms similar to Brazil's Pix system.
The experimental design of CBDCs is a digital form of currency birthed by national central banks. Governed through private networks and both controllable and programmable, these currencies allow central banks to track, modify and have clear visibility of transactions. This gives those in power massive control over the movement of money and the ability to limit spending, set 'use by' dates for savings, and even remotely freeze or confiscate money. According to a prediction by CitiGroup, CBDCs worth $5 trillion will be operational in the global economy by 2030.
Famous cognates in the crypto realm such as Consensys, the owner of MetaMask and Infura, exhibit a remarkable fascination with CBDCs, despite being known as crucial players in the blockchain world. Collaborating with Visa, the company is developing an infrastructure that links central banks with conventional financial institutions. Other cryptocurrency initiatives including Ripple (XRP) and Stellar (XLM) have been actively permitting their blockchains to aid in the development of CBDCs.
While Ripple's XRP operates on a decentralized public ledger much like Bitcoin (BTC) or Ethereum (ETH), the company launched a CBDC platform in 2021 on a separate, private ledger meant solely for governments, central banks, and financial institutions. This allows these bodies to have full command over their new digital currencies.
Stellar on the other hand, proposes the creation of CBDCs on its public blockchain with custom alterations for centralized entities to boost governance. Stellar, within its CBDC Guidebook, suggests administering monetary policy and programmability centrally, whilst maintaining a decentralized technological infrastructure and service delivery.
Despite the potential business benefits, one would optimistically expect substantial blockchain players like Ripple and Stellar to utilize their extensive banking connections to oppose CBDCs on ethical grounds. Nonetheless, even within our flawed world, their transparent discussion about the long-term risks associated with CBDCs, especially the hazards of providing governments with overpowering financial control, could make a significant difference.
Despite having clear historical examples such as Canada’s unconstitutional freezing of bank accounts of anti-lockdown protesters in 2022, or the mandate issued by US President Franklin Delano Roosevelt in 1933 that ordered citizens to surrender their gold to the federal government, the advent of CBDCs mark a clear threat to the primary principles of blockchain technology such as immutability and decentralization.
CBDCs could possibly signify the inception of an authoritarian status quo. It's essential for top-tier intellects and leaders within and outside of the blockchain domain to shun CBDCs. By vociferously opposing and contesting CBDCs whilst supporting decentralized alternatives, these leaders can inspire others to follow suit.
Cryptocurrencies have long been disdained and dismissed, and they undeniably have an image problem following the collapse of FTX and other notorious events within the sector. However, the technology, application, and principles of cryptocurrencies render CBDCs redundant. Cryptocurrencies already fulfill the need for swift, affordable, and accessible transactions for everyone.
By applying "know your customer" (KYC) practices, governments can monitor, tax, and combat money laundering in cryptocurrency without needing excessive centralized control. The current uptick will attract millions of new investors — potentially amounting to 1 billion by the end of 2025. It presents an opportunity to utilize this publicity to communicate that CBDCs are not the only step forward.
The article was authored by Callum Kennard, founder of Guava Studio, an e-commerce and Web3 marketing agency based in the UK. Callum is a politics and social policy graduate from the University of Brighton. Please remember that this article is intended purely for informational purposes and should not be viewed as legal or investment counsel. The viewpoints expressed here solely represent the author's perspective and may not mirror the beliefs or opinions of Cointelegraph.
Published At
5/3/2024 12:55:21 AM
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