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Are CBDCs Our Savior Or Oppressor? What You Need to Know

Since bursting onto the scene in 2009, blockchain technology has been at the forefront of technological innovation. Everything from global supply chains to authentication of digital assets through NFTs. Blockchain technology continues to find new and interesting use cases.

It is no surprise then that governments around the world that initially dismissed this tech, have now shown an interest in implementing it into their monetary systems. Love or hate the technology, blockchain’s power is undeniable and it is here to stay. How will governments implement this technology? Enter Central Bank Digital Currencies (CBDCs).

A photo of popular banks

What are CBDCs?

Central Bank Digital Currencies are the next evolution of digital currencies issued by central banks. This may seem confusing on the surface since legacy banks have been digitizing their records for a number of years. Customers can easily access their funds through online banking, take out loans, and engage in wireless transactions at almost every store they can imagine. Why then the need for CBDCs?

The General Manager of the Bank of International Settlements (BIS) described the main difference is that they enable banks to account for every transaction through the use of blockchain technology. In the current system, cash is often misplaced, unaccounted for, and a prime tool for criminals to launder through due to its anonymity. Moreover, CBDCs have the added benefit for central banks to implement smart contracts.

The Case For CBDCs

One of the many criticisms of fiat currencies and the legacy banking infrastructure is its difficulty in managing cross border payments. Most of the world’s cross-border banking is done through the use of the SWIFT network. This network has provided the framework for sending money internationally since 1973, and in 2022 it was calculated that over 11,000 institutions globally accept it as a payment rail.

Some of the problems with the SWIFT network include that it can be expensive to send payments, there are several levels of counterparty risk associated with it, and it can take two-three weeks to have payments fully settled.

In the year 2023 where individuals can send text, audio, and video messages in real time across the globe, the SWIFT network appears to be archaic. CBDCs would solve these problems and allow for cross-border payments including remittances to process at the speed of light for a fraction of the cost.

As mentioned before, cash is still the preferred means of exchange for criminals due to its anonymity and opaqueness in tracking. CBDCs would eliminate this by removing cash from the equation and forcing all payments to run through the CBDC blockchain that can be easily monitored for criminal activity.

In addition, the implementation of smart contracts would allow CBDCs to effectively and efficiently distribute benefits and collect taxes from citizens. It would reduce the burden on the system by eliminating the need for having people process these payments and create more accountability. Tax fraud and tax havens would be easy to locate since all transactions could be tracked using blockchain forensics.

The Case Against CBDCs

In January 2022, the Canadian Federal Government made the decision to enact emergency measures to combat a protest in front of the Canadian Parliament. Part of these measures allowed the Canadian government the ability to freeze bank accounts and seize digital assets from the protesters. This was done through the legacy banking infrastructure and set a dangerous precedent for Western Democracies.

A Danger to Monetary Sovereignty

The weaponization of individuals’ bank accounts is an affront to the Universal Declaration of Human Rights. Article 20 declares the right to peacefully assemble. By freezing bank accounts and seizing assets, the Canadian Federal Government undermined this principle and prevented people from doing exactly that.

The events in Canada were made that much more shocking due to Canada being widely regarded as a bastion of liberal democracy and human freedom. If this was the lengths governments in the “free world” are willing to go in pursuit of law and order then what hope is there for countries with a history of authoritarianism and corrupt banking infrastructure.

Moreover, if these emergency measures were achieved without the use of a CBDC, how much more damage could be done with the use of one. It is easy to imagine how a more nefarious government may utilize CBDCs to limit and control their opposition from speaking out.

Centralized Programmable Money

There are many issues with programmable money, even if your government does not target you individually for confiscation, they can still implement limitations on the money you have through the CBDC.

Money that has expiry dates on it that forces people to spend it or lose it. Money that can be censored on what you can purchase or support. Money that can be tied to a digital ID and health records to prevent or limit your consumption of alcohol, tobacco, or foods high in saturated fats.

On the industrial scale, there could be limits or additional taxes on corporations in regards to ESG or whatever the policies of the government of the day are.

Conclusion: Take Caution with CBDCs

It could be argued that money in its current form is already highly manipulated and controlled by central banks. They set the volume that is allowed to circulate (money printer go BRRRR) which directly leads to inflation and eventually higher interest rates. Canada shows that governments already possess the political mechanisms that allow them to freeze and seize citizens’ accounts.

Yet, when compared to the potential of a CBDC and what it could mean for a society, we should err on the side of caution. How much control do we really want to hand over to our central banks? Would they lead to a more prosperous society or would Canada be the start of the road down a truly dystopian nightmare of absolute government control? One survey showed that 59% of Canadians are willing to use a CBDC, but none of us can really predict what lies ahead of accepting that path.

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Iain Taylor

About the Author

Iain Taylor

Iain Taylor grew up in Northern Ireland, and is currently living in Halifax, NS. He has quadruple citizenship status, and has been involved in cryptocurrency since the end of 2020. He completed a study in Bitcoin, Blockchain Technology, and Cryptocurrencies at Dalhousie in 2021, and has been writing on the industry since September 2021.

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