Continuous Push for CBDCs: Are the Costs Outweighing the Benefits?
Summary:
Despite the persistent push for central bank digital currencies (CBDCs) by organizations such as the International Monetary Fund (IMF), Bretton Woods Committee, and Bank for International Settlements, many efforts worldwide have yielded unsatisfactory results. Considering these outcomes and ongoing risks, the article suggests that governments should reassess the cost-benefit balance of CBDCs and instead focus on implementing broader reforms to develop a freer, more reachable financial system.
Despite the pitfalls and unsuccessful attempts linked to central bank digital currencies (CBDCs), worldwide policymakers remain resolute in their efforts to bring them to fruition. Just in the month of November, high-ranking figures from institutions such as the International Monetary Fund (IMF), the Bretton Woods Committee, and the Bank of International Settlements (BIS) have fervently encouraged nations to advance with CBDCs steadfastly. However, rather than persisting with a flawed concept and squandering more resources, the authorities would be better served focusing their efforts on more essential reforms that promote a free financial system.
In November, IMF managing director Kristalina Georgieva instructed officials that they “need to pick up speed with CBDC development." Simultaneously, Bretton Woods Committee chair Bill Dudley pushed not only for the USA to create a CBDC but also for the BIS to craft an international standard for CBDCs. Meanwhile, head of the BIS Innovation Hub, Cecilia Skingsley, argued to an audience that CBDCs shouldn't be cast aside as a “solution looking for a problem” as they could be beneficial in the future.
The initiative comes at a peculiar time. Information from the Human Rights Foundation’s CBDC Tracker shows that CBDCs have been launched by nine countries and the Eastern Caribbean Currency Union’s eight islands; 38 nations and Hong Kong are running CBDC pilot schemes, while 68 countries and 2 currency unions are actively researching CBDCs. Yet, none of these efforts have yielded convincing results.
Some nations may not even have the funding necessary for such endeavors. In Thailand, for instance, plans to distribute 10,000 baht ($288) to citizens through a CBDC were delayed as the government had yet to establish where the needed 548 billion baht ($15.8 billion) would be sourced. The situation was further complicated by legal concerns surrounding the initiative. Only later was it divulged that the plan would be funded by government loans.
In other countries, the CBDC experiment has yielded undesirable outcomes. In Nigeria, the government attempted to boost the adoption of their CBDC by withdrawing physical cash, resulting in a severe cash shortage and civil unrest. Nevertheless, CBDC adoption rose only from 0.5% to 6%. Therefore, it appears the CBDC experience is at best characterized by government wastefulness, and at worst points towards excessive government control.
Against this background, it's hard to comprehend why international organizations such as the IMF, Bretton Woods Committee, and the BIS continue to insist on the implementation of CBDCs.
Given the observed failures and the persisting risks, it would be ill-advised for the US and other governments to introduce a CBDC. Simplistically, the disadvantages far outweigh the possible advantages.
No one can deny that central banks and related entities have invested significant time, resources, and credibility into CBDC projects. Yet, it would be folly to carry on purely because of these investments, succumbing to the sunk-cost fallacy.
On the other hand, if the authorities truly wish to revolutionize the financial system to everyone's benefit, there are plenty of opportunities for creating a freer, more reachable, and open financial system. This ranges from reinforcing financial privacy protections to overseeing federal regulators.
For instance, scaling back the extensive financial surveillance currently in force can have immense benefits. American financial institutions spent an estimated $46 billion complying with financial reporting requirements in 2022. These costs trickle down to individuals looking to open accounts or secure loans, making the whole process more expensive.
Reforming financial policies has the potential to make the financial system more cost-effective and faster. Best of all, improving financial privacy doesn't necessitate a redesign of the existing monetary system.
Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, is the author of The Infrastructure Investment and Jobs Act’s Attack on Crypto: Questioning the Rationale for the Cryptocurrency Provisions and The Right to Financial Privacy: Crafting a Better Framework for Financial Privacy in the Digital Age.
This article is designed to provide general information and does not constitute professional legal or investment advice. The opinions and views expressed herein belong solely to the author and may not reflect or represent the views and opinions of Cointelegraph.
Published At
12/7/2023 2:50:22 AM
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