Fintech
Make no mistake: CBDCs will ‘consolidate government control’ over money, says author – DL News
- In a new book, political analyst Nick Anthony explains the implications of digital fiat currency.
- Central bank research into CBDCs has quadrupled in the last four years.
- Anthony argues that technology is not the solution to an impractical cross-border payment system.
CBDCs will bring few, if any, of the benefits touted by entities like the International Monetary Fund, and could pose significant risks to privacy and personal freedom.
That’s according to a new book, “Digital Currency or Digital Control? Decoding CBDC and the Future of Money,” by Nicholas Anthony, a policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives.
“There should be no misunderstanding: The efforts in the United States and abroad are little more than an attempt to consolidate government control over money and payments,” he wrote.
Exploring CBDCs
Interest in CBDCs, or central bank digital currencies, among monetary policymakers is growing.
A total of 134 countries and currency unions are exploring CBDCs, nearly four times the number in May 2020, according to the Atlantic Council.
This includes 19 G20 countries and the five founding members of BRICS, the club that includes Brazil, Russia, India, China and South Africa.
China, which began evaluating CBDCs in 2013, has launched pilot programs in 25 cities.
However, the projects have struggled to get off the ground. In China, traders in pilot cities remain perplexed as to what exactly e-CNY – the digital yuan – is, and most people have only heard of it in passing.
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The Central Bank of the Eastern Caribbean’s prototype, DCash, suffered an outage from January to March.
In the United States, the development of CBDCs has stalled due to growing concerns about their potential impact on people’s rights.
Anthony argues that more needs to be done to ensure that CBDCs do not gain a foothold in the financial system.
“The problems we have with the current cross-border system are based on political choices.”
— Nicholas Anthony, author
“I’m very concerned and I think this is a real risk around the world,” Anthony said DL News.
He asks people to start reporting CBDC projects.
“Because if that can happen now, we can change the outcome a lot, both in terms of what final form they take and whether people will use them or not.”
What is the purpose of a CBDC?
Anthony’s main argument is that there are few tangible benefits for countries implementing a CBDC.
“I’ve seen people try to make financial arguments and things like that, but once you get to the next layer of the conversation and get into the details, it just doesn’t hold up,” he said.
In the United States, for example, according to a survey by the Federal Deposit Insurance Corporation, 72% of the country’s 5.9 million unbanked households simply aren’t interested in having a bank account.
One reason is that they don’t meet the minimum balance requirements to open a bank account, while others are that they don’t trust banks or think they’ll have more privacy without one.
Anthony argues that there is nothing inherent in a CBDC that could change this situation.
In fact, the big problem in making cross-border payments more efficient does not come from technology, he said.
“Many of the problems we have with the current cross-border system are based on political choices,” the author said. “The barriers currently erected between borders are largely choices made by federal governments.”
“There are other ways to solve this problem that do not involve reinventing money, such as reassessing the banking secrecy regime and relevant regimes abroad,” he added.
Programmable features
What really concerns Anthony is how CBDCs could control or limit consumers’ financial decisions.
Last October, Lu Lei, deputy administrator of the State Administration of Foreign Exchange of China, advocated its use “programmable functions” in its CBDC.
And Thailand has been mulling a CBDC pilot that would give citizens several thousand baht to spend, but would limit spending to a certain radius of their homes.
Anthony offers the scenario where governments are able to reduce excessive alcohol consumption by limiting the number of drinks a person can purchase.
“If they take away all these features for governments and there are no features left for citizens, then what are we doing?”
— Nicholas Anthony, author
“These kinds of paternalistic policies may seem attractive to some at first glance, but they can quickly unravel or lead to unintended consequences. For example, how would they explain someone buying a round of drinks for a group of friends?”
More seriously, he added, it could also prevent people from shopping at legal but politically controversial businesses. Or even introduce negative interest rates to push people to spend instead of save.
“It opens up this new suite of tools that they otherwise wouldn’t have had. However, these tools come at our expense,” she said.
Unfashionable
He said discussing programmable features has fallen out of fashion among Western governments in recent years.
“What we’ve seen is that from about 2016 to 2021, these ideas have been spread quite openly. Now that we’ve had this slow increase in concerns, they’ve backed off a little bit,” she said.
This has brought the CBDC discussion into another “awkward space.”
“If you get rid of all the features that would benefit governments, and there are no features that will benefit citizens, then what are we doing?” he said.
“It literally makes you scratch your head.”
Callan Quinn is DL News’ Correspondent from Hong Kong. Contact her at callan@dlnews.com.