The Hidden Dangers of Central Bank Digital Currencies: Threats to Privacy and Democracy
Summary:
The article explores concerns with central bank digital currencies (CBDCs), highlighting potential constraints on users' privacy and financial freedom. CBDCs could allow banks and governments to monitor every aspect of an individual's spending history, potentially infringing on personal data privacy. Additionally, due to the digital nature of CBDCs, users may not have complete control over their funds, which could lead to limitations on payments and transfers. The article also points out potential threats to democracy, as CBDCs could be used by governments to financially suppress opposition. The article underscores the need to consider these potential issues before adopting CBDCs.
The subject of central bank digital currencies (CBDCs) has gained significant attention within the financial landscape, as it's believed to bring about improved security, efficiency, reduction in corruption, and stability. Large financial bodies, such as the International Monetary Fund, World Bank, World Economic Forum, and Central Banks, tag CBDCs as a perfect solution for various financial challenges. However, there are questions about the benefits of CBDCs, especially considering the less-discussed aspects, namely, extensive data tracking and programmability impact on spending freedom.
CBDCs, as digital legal currencies directly issued by Central Banks, won't offer anonymity. The system will require customers to undergo detailed identification processes similar to those currently in use in commercial banks. Consequently, banks will have access to comprehensive information about the holders of these digital currencies, their transactions, recipients, and purpose of usage. This information will be recorded and managed on a digital ledger controlled by the central banks.
Using this system, central banks can create a comprehensive record of every citizen's financial transactions from birth to death. Though supporters of the system may easily dismiss any concerns, the government could potentially access private details, including political affiliations, religious donations, mental health struggles, and more. The system could also monitor citizens' habits such as alcohol and cigarette purchases, and how that might impact insurance premiums. Even carbon footprints could be traced, thereby affecting environmental policies and infringing on personal data privacy.
Additionally, the nature of CBDCs means that they will be held by the central bank in an individual's name — a stark change from physical money that is directly owned and held by the user. As such, users may not have full control over their money if transactions via the 'middleman' central bank are halted. If CBDCs replace physical cash, users will lose the freedom to hand over money directly to whoever they please.
In essence, CBDC transactions could be subject to various constraints, including payment and transfer limitations, exclusions on sending or receiving money from specific groups, or restrictions on certain purchasing activities. This would make it easier for governments to choke fund circulation to disagreeing voices, as witnessed in the 2022 action by the Canadian Prime Minister, Justin Trudeau, against the Freedom Convoy members.
It is even conceivable for CBDCs to be utilized in implementing curfews or house arrests. For instance, CBDCs might be programmed to function within specific hours or geographical constraints. A CBDC regime could be used to inhibit political rallies from taking place. More so, CBDCs could be programmed to depreciate over time, which might be useful in economic downturns, though inevitably detrimental to savers.
Unfortunately, the reality of CBDCs doesn't end with freedom constraints and data privacy violations. CBDCs also pose a danger to democracy itself, with the potential to empower people in control to use them for defunding opposition, leading to potential digital power grabs.
In view of this, adopting CBDCs presents a "veil of ignorance" condition, compelling consideration, not only for potential misuse by the current government but possible abuses by future governments. This raises the inescapable question of whether CBDCs pose an imminent threat to freedom both nationally and globally.
Dr. Patrick Schueffel is an associate professor at the School of Management in Fribourg, Switzerland, with research interests in fintech, digital assets, and entrepreneurship. He boasts an impressive career history, including as the COO at Saxo Bank, senior management member at Credit Suisse, and a three-year residency in Singapore. His academic qualifications include a doctorate from Henley Business School at the University of Reading, a master's degree from the Norwegian School of Economics, and a diploma from Mannheim University, Germany.
The viewpoints expressed here are solely those of the author and in no way represent the views and opinions of Cointelegraph. This article is meant to provide general information and is not intended to serve as legal or investment advice.
Published At
10/5/2023 8:48:37 PM
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