CBDCs considered evil and a threat to individual interests?

• CBDCs are seen as the new economic cornerstones as we move closer to a cashless future.

• CBTDCs provide  risk of citizen privacy breach, as they can be used for taxes and financial monitoring.

• Practical implementation of a CBDC system is to have a central bank that directly delivers digital money to consumers

People hardly paid much attention to the new “digital currencies” when they first appeared in 2008 with the debut of Bitcoin, and in 2015 with the ICO of Ethereum, which initiated the altcoin boom. But, further rises in cryptocurrency popularity have caused governments and everyone else to hesitate. 

Currently, nations are preparing to introduce central bank digital currencies—digital representations of their national currencies (CBDCs). Countries like China and the Bahamas have already conducted CBDC pilot programmes while the US is considering a digital currency. Even less developed countries have entered the competition. 

CBDCs are inevitable if these indicators give any indication. As we move closer to a cashless future, CBDCs will serve as the new economic cornerstones.

But just because something is well-liked doesn’t necessarily imply it’s excellent, and the same is true of CBDCs. While many have extolled the virtues of state-backed digital currencies, they often omit vital details regarding how these new coins would operate.

Why are CBDCs considered evil

CBDCs may lead to increased levels of control by governments and central banks. 

Given the growing popularity of Bitcoin and other cryptocurrencies, financial officials are already concerned about losing control over the amount of money in circulation. They believe that this momentum has the potential to lessen the bank’s hold on monetary and economic stability. 

The modern monetary theory, or MMT, promotes the notion that the government can use deficit spending and direct transfers of monies to individuals to alleviate economic hardship during recessions without having to be concerned about the national debt. Inflation is the idea’s obvious threat. 

The most worrying development with relation to CBDCs is the potential partisanship of MMT, as opposed to a more independent central bank approach to monetary policy distinct from fiscal policy.

Bank runs are yet another unfavourable factor to take into account. Traditional institutions may see significant deposit outflows if anyone may create an account with a central bank and deposit CBDCs (perhaps even without fees or transfer costs like in an ordinary bank). 

As this currency is digital, it theoretically has the potential to have a third side as well.

CBDC’s violation of privacy rights 

The use of CBDCs will result in levels of citizen privacy breach that have never before occurred. Every purchase, transfer, and payment will be documented in a public database for both beneficial (taxes) and detrimental (financial monitoring) purposes. 

Governments will play the part of Big Brother and keep an eye on everyone’s financial transactions. A government can easily stop making some payments if it wants to. This might entail anything from buying legal marijuana, paying an illegal worker, or even sending money to family members who are in countries that are sanctioned. 

You have the flexibility to deal with anyone directly without any middlemen interfering when you use cryptocurrencies (instead of CBDCs). 

CBDCs provide a threat to overturn this and increase governmental control over financial transactions between individuals. 

CBDCs maintain banking firm’s dominance?

The problematic feature of CBDCs is that they maintain the oligopoly dominance of banking firms and further concentrate money. CBDCs give central banks almost total control over financial systems, in contrast to cryptocurrencies, which seek to democratize and decentralise money. 

More central bank oversight and control come at the expense of transactional anonymity and privacy. It is conceivable that central banks will employ their new digital toolkits to track, record, examine, and tax every transaction. 

It would also improve control over how much access a regular person has to a financial system, particularly if that person exhibits conduct that central banks would view as dangerous for whatever reason.

Conclusion 

The most practical implementation of a CBDC system is one where the central bank of the country directly delivers digital money to consumers and protects their assets. In the event where central banks replaced private banks, the whole commercial banking sector would be eliminated. 

Even with a hybrid system that splits control of the CBDC flow between central banks and commercial banks, there will still be problems. People may regularly engage in bank runs because they believe the central bank is a safer place for their money than private institutions. 

Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.

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