CBDC stands for Central Bank Digital Currency and is expected to replace money as we use it today. In this article I will discuss the characteristics of CBDC, the dangers and disadvantages and, even if you may not believe it, 1-2 advantages.
CBDCs are no longer money issued by the bank, but money issued directly by the central bank. In another article I have already written about how the BRICS countries could use the CBDC.
Since central banks are state-controlled, there is a direct influence on the use of money here, as well as unprecedented supervision.
But before we get into the dystopian, let's get to the benefits.
Advantages of CBDC
- Basic social income, through CBDC, funds could be targeted to social challenges, for example unemployment, immediately, without weeks or months of waiting, which could exacerbate a precarious situation, as this is automated.
- Prevent social benefit abuse, since the CBDC works with tokens, each transfer can be given a technical purpose so that the money can only be used for specific things
Well, and with the last positive point, which is actually good, because then the money can't be used for other things, so it also becomes a disadvantage for people who don't have to receive social benefits.
Programmable money
When we send money today, it is possible to specify a purpose, but this is usually only of an optical nature, in order to be able to allocate a transfer. But what if the money you receive can only be used for a specific purpose?
So in the near future, you may well identify yourself first at the checkout with your CBDC digital wallet on your smartphone via QR code, of course, this purchase is also communicated to the central bank to then pay with the money on your wallet, but you have no freedom to use freely, because by programmability, the money is virtually divided into categories within the wallet.
An example
Let's assume that John, a citizen, receives 2000 euros from his employer every month. You can do a lot with that, but not in this world, because the money is monitored by the state and John has an identification number that is linked to a score. Depending on how well John behaves, he gets more or less freedom. John is unfortunately not a good citizen, because an AI recognized his face at an illegal demonstration. He has had restrictions placed on his CBDC wallet. Percentage-wise, his money is distributed.
Of the 2000 €, he may only use 200 € for shopping, and of the 200 €, in turn, only 20 € may be spent on meat. His rent for 800 €. Electricity and utilities are exactly accounted for. The rest of the money is frozen. John sees it in his wallet, but he has no access to it anymore, the free use of the money has been technically prevented for him. And if John again attracts negative public attention, the frozen amount is permanently withdrawn from him as a punishment.
It is a small example of what is already technically feasible today.
Social credit system
The social credit system is not part of the CBDC, but it would give state actors the opportunity to implement such a social credit system, since now you already know what you are spending money on. For example, if one buys more meat than the recommended guideline or more than the average population, one could be penalized and lose points as a result. But also if you buy from companies that are not "climate friendly" in the government's sense, you could lose points, which you can of course make up for by leaving your money with a climate-friendly company.
Although I do not see such an introduction in the EU as realistic, because it is not legally feasible, but if you see that laws and legal remedies are bent until it fits. For example, a judge sets a non-German rapist free, although there is a clear sentence, then I would be in the social credit system, no longer sure whether the legal system would stop this, because it depends here probably also on individual judges, who are also only human.
Identification as a movement pattern
The next problem is that you have to identify yourself at the checkout in the supermarket so that you can pay and the central bank knows who the recipient is. The practical method here is a QR code, since not all devices have NFC. This QR is not a problem in itself, because even with a card payment, whether by credit card or EC bank card, the data is on it, but you are not tracked. By linking the data and the addresses of the cash registers, you can assign each purchase to an address and track the user.
Now, of course, you can argue that Google Maps can track me, and that corresponds to reality, except that Google is not a government and can't forbid me to move where I want.
An example, the planned 15 minutes cities, if the citizens would not be allowed to leave the district, of course, to save CO2 and be climate friendly, you will be tracked by the payment in other cities, whether you would have to stay there at all, etc..
The CBDC thus becomes a surveillance tool, with the added feature that citizens can use it to pay.
The expiration date
One technical possibility that should give anyone a fright is that your own money has an expiration date, imagine working hard all month so that you can afford to live and build yourself something so that you can save yourself money for your retirement to provide for yourself in old age, only to realize at the end of the month that this hard earned money has expired and is no longer available, in effect devalued.
And exactly that is possible, who does not spend its money, which it earned in the last month, in the current month, the money would be able to be devalued, for example one could let so the money for the category food buy, expire, so then nobody can hoard something, store etc., however that brings further advantages to the state, so consumption can be steered with it, in which one leaves to the citizen times more or times less liberties for consumption, so the free social market economy would develop to a state-controlled planned economy. Because the consumption would be no longer after the free will of the citizen, but of the state or the respective government.
Consequently, when shopping in the supermarket, the CBDC money could be adjusted step by step, slowly but continuously, so that you reduce the meat consumption and you consume more food with insect content or that there is discount if you buy vegan products. A parallel development could be seen here in Germany on the subject of meat in canteens, where one went from one meat-free day, to two meat-free days.
The access control
Besides programmability, which is the control over what you can spend the money on and the expiration date, which indicates when the money expires and is no longer usable, here comes another point, and that is access control.
In China, there was a bank run in 2022 because a Real estate bubble in burst, to make it difficult for people to enter and get the demonstration under control, the Covid App was switched to red, technically feasible.
Now it could go even further, for example, if the state needs more money due to inflation or the citizen has shared a link in the Covid pandemic, which was not in the sense of the public media, or this has been on a demonstration, which was not registered, so state institutions could then freeze the money in the account of the citizen without further ado, because the money is virtually with the state, which cooperates with the central bank. With the banks in the current form, this would not be possible without further ado.
One would be exposed to the danger that at any time, the Money on CBDC digital wallet, frozen could be.
The privacy
While one's own bank account is still halfway protected by banking secrecy today, such banking secrecy would probably no longer exist at the central bank, or not in the form in which it is applied today. Since every transaction is traceable and would be analyzed centrally, it would be possible to trace money movements between citizens and companies. Privacy would cease to exist, as state actors would always be able to track who has been paid for what and when.
Today, this transaction traceability ends at the respective bank, which only forwards the money to the next bank, from there you can no longer see except to which IBAN the money was sent. Further traceability is then up to the state prosecution authorities, the police for the purpose of money laundering, etc..
The here highest form of privacy, is only possible through cash, because cash is analog, it cannot be tracked when who was paid with how much money for a product.
The next best possible privacy option after anonymous cash payments is to use decentralized cryptocurrencies, where you can see how much cryptocurrency is deposited on a wallet, but this is pseudonymous and not anonymous.
The thing with convenience
Yes, the purely digital payment, be it with QR code, link, simply with the smartphone via NFC or credit card, it is convenient, you do not need paper or coin in the wallets and if you are robbed, I have not yet seen anywhere that a person committing robbery Paypal as a digital account vewendet.
But are the small benefits worth the risks? Do we really want to give up the freedom to decide for ourselves what we spend our money on? I'm not saying that cash is the only true form of payment, but it is and remains, and I say this as a man from IT, the most anonymous form of payment.
Further information:
The digital euro as a CBDC - what do you think of it?
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