Central bank digital currencies (CBDCs) have become a prominent topic in the financial world, with promises of enhanced stability, security, efficiency, and reduced corruption. Proponents, including central banks, the International Monetary Fund, the World Economic Forum, and the World Bank, argue that CBDCs are a cure-all for our financial system’s ailments.
However, there are two important characteristics of CBDCs that are often overlooked by their supporters. First, CBDCs leave a permanent data trail of how individuals spend their money. Second, CBDCs are subject to programmability, meaning that political leaders can dictate whether individuals are allowed to spend their money.
As CBDCs are issued directly by central banks to digital wallets, they will not be anonymous. Clients will have to go through identification processes similar to those imposed by commercial banks. The specific design may vary, but either commercial banks, the central bank, or both will have access to information on who holds the digital currency, how it is spent or transferred, to whom, and for what purpose. This data will be stored on a central digital ledger operated by central banks.
This system allows central banks to create a ledger containing every citizen’s financial transactions from birth to death. While proponents may dismiss concerns, governments could potentially use this information to gather details about citizens’ political affiliations, religious donations, mental health, and other personal information. Public health services might monitor alcohol and cigarette purchases and lifestyle choices to adjust insurance premiums. Even the environmental impact of purchases could be tracked to shape environmental policies, significantly compromising citizens’ data privacy.
The introduction of CBDCs will fundamentally change our relationship with money. With physical cash, we are the direct holders and owners of the coins and banknotes in our pockets. However, with CBDCs, we will only be the owners of digital cash held in our name at the central bank. This means that we will never have full discretionary power over our money, as the central bank will always act as a middleman between us and our funds. If the central bank refuses a transaction, we will be unable to purchase or transfer money in a world where CBDCs have replaced physical cash. We will no longer be able to simply pull out a banknote and hand it over to anyone we choose.
In essence, every CBDC transaction could be subject to restrictions. These restrictions may include payment constraints, transfer limits, or blocking transactions to specific groups, individuals, organizations, or companies. This would make it more convenient and efficient for governments to defund dissenting voices, as Canadian Prime Minister Justin Trudeau did with members of the Freedom Convoy in 2022. Rather than issuing orders to freeze accounts at banks or payment providers, the administration could simply cut off protesters’ access to their cash with a push of a button.
CBDCs could also be programmed to impose curfews or place people under house arrest. With a keystroke, CBDCs could be programmed to only function between certain hours or within a specific radius of an individual’s registered home address. This could be used to prevent certain rallies or assemblies from taking place. This level of control could be used to silence opposition and stifle democracy.
Furthermore, CBDCs could be programmed to depreciate over time, which could benefit governments and central banks during times of economic decline. However, savers would bear the brunt of this scenario. Governments could also impose special taxes, forced loans, or directly access digital wallets for tax collection and fine deductions. Financial autonomy would undoubtedly erode under a CBDC regime.
In addition to the constraints on data privacy and financial autonomy, the fundamental danger of CBDCs lies in the potential abuse of power by those in control. If those in power have the ability to defund opposition by controlling CBDCs, it is likely that they will eventually do so. Giving governments CBDCs and hoping they won’t abuse them is akin to giving an alcoholic a glass of whiskey and hoping they won’t drink it.
In evaluating the pros and cons of retail CBDCs, it is important to consider the concept of the “veil of ignorance.” This prompts us to not only consider whether our current government would abuse CBDCs but also whether future governments could do so. By imagining the worst possible governments and reflecting on their potential misuse of CBDC power, it becomes clear why CBDCs pose a significant threat to freedom, both domestically and globally.
Dr. Patrick Schueffel is an adjunct professor at Fribourg’s School of Management in Switzerland, with a focus on fintech, digital assets, and entrepreneurship. He has extensive experience in the banking industry and holds a doctorate, master’s degree, and diploma from reputable institutions.
This article provides general information and should not be taken as legal or investment advice. The views expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.