Central bank digital currencies (CBDCs) provide governments with complete control over currency, but they should be rejected by blockchain leaders who value fairness. Unfortunately, this is not the case. In June 2023, the International Monetary Fund (IMF) acknowledged that most cryptocurrency innovations have come from the private sector. However, it commended central banks for “catching up” by experimenting with CBDCs and creating state-controlled instant payment systems, such as Brazil’s Pix.
CBDCs are an experimental form of digital money created by a country’s central bank. They are typically controlled through a private network and are both centralized and programmable. This means that central banks can track, monitor, and modify transactions. These capabilities grant authorities extensive control over money flows, including the ability to impose spending restrictions, set expiration dates on savings, and even remotely freeze or seize funds. By 2030, CitiGroup predicts that $5 trillion worth of CBDCs will circulate in the global economy.
While some crypto leaders have privately expressed concerns about the rise of CBDCs and their implications for privacy, democracy, and authoritarianism, others openly support them, even as they paradoxically promote the advantages of decentralized technologies.
Consensys, the owner of MetaMask and Infura, is a prime example. It is widely recognized as a foundational force in blockchain technology but maintains a flirtatious relationship with CBDCs. In collaboration with Visa, Consensys is developing new infrastructure to connect central banks with traditional financial institutions. Other cryptocurrency projects, such as Ripple (XRP) and Stellar (XLM), have also been involved in facilitating the development of CBDCs using their blockchains.
Ripple’s native cryptocurrency, XRP, operates on a decentralized public ledger similar to Bitcoin (BTC) or Ethereum (ETH). However, in 2021, Ripple introduced a CBDC platform on a separate private ledger specifically designed for governments, central banks, and financial institutions. This setup allows these entities to exercise complete control over their digital currencies.
In contrast, Stellar advocates for creating CBDCs on its public blockchain, but with custom adjustments that allow centralized entities to enhance governance. In its CBDC Guidebook, Stellar suggests central management of monetary policy and programmability, while maintaining a decentralized approach to technological infrastructure and service delivery.
In an ideal world, major blockchain players like Ripple and Stellar, with their significant banking connections, would use their influence to resist CBDCs on moral grounds, despite the tempting business prospects they offer. However, even in an imperfect world, openly discussing the real long-term threats of CBDCs, especially the risks of giving governments overwhelming financial power, would make a significant impact.
While it may be gratifying to see blockchain technology being discussed in high-level forums such as the IMF and Davos, this recognition does not translate into a victory for the ideals of blockchain. On the contrary, CBDCs compromise the core principles and benefits of blockchain, such as immutability and decentralization.
Can governments be trusted with such power? Historically, the answer is “No,” even in the Western world. Canada’s activation of the Emergencies Act in 2022 to unlawfully freeze bank accounts linked to anti-lockdown protesters and US President Franklin Delano Roosevelt’s executive order in 1933 mandating citizens to hand over their gold to the federal government are examples of governments abusing their power.
Regardless of the consumer safeguards that may be implemented in future CBDCs, governments will retain extensive control to modify, adjust, and redefine the rules governing this form of money over time.
Western governments are known to impose financial sanctions on their own citizens for political purposes when it suits them. Embracing CBDCs risks normalizing the use of these measures.
Cryptocurrencies have faced mockery, ridicule, and PR problems following the collapse of FTX and other scams in the industry. However, despite these challenges, the technology, applications, and ethos of crypto make CBDCs unnecessary. We don’t need CBDCs for fast, low-fee, and accessible transactions for everyone. Crypto can already provide that.
With know your customer (KYC) measures, governments can already monitor, tax income, and crack down on money laundering in crypto without excessive centralized control.
CBDCs could be the first step towards an authoritarian new norm. It is up to blockchain leaders and thought leaders to wake up and stop flirting with CBDCs. They can actively fight back by supporting decentralized alternatives and speaking out against CBDCs, empowering others to do the same.
The current bull run in the crypto market will attract millions of new investors and enthusiasts, possibly reaching up to 1 billion by the end of 2025. Let’s leverage this publicity to spread the message that CBDCs are not the only way forward.