With the cryptocurrency market in limbo mode currently, I thought it may be a good chance to look at CBDCs as I think and believe could become a hot topic in 2024.
Obviously, the big fear is that with the rise of Bitcoin, the launch of Central Bank Digital Currencies is the government’s attempt to protect its privileged position and exert more control over people’s money.
The risks are also the reduction of credit availability from our new digital overlords, the disintermediating banks (which is rapidly happening), and the potential fighting off of the rise of retail choice cryptocurrency.
Many years ago when cryptos first came to pass I even had the thought that digital currencies could be some type of government Trojan Horse or Totalitarian Tip-Toe to get the mainstreamers hooked before the real motives of a new government-controlled payment system presented themselves.
It would seem with CBDCs I could well have been right. What is even stranger is that currently really have to dig deep to find any objectionable content of CBDCs on the internet against them.
Recently the European Governing Council announced it is going to start the digital euro preparation phase following the conclusion of a two-year investigation phase on the design and distribution of a digital euro.
Work is ongoing, which includes finalising the rulebook and selecting providers to develop the platform and infrastructure, which like other cryptos paves the way for the digital euro.
A number of Caribbean countries and Nigeria have already launched digital currencies while China and Sweden are among those that have rolled out pilot projects.
The Fed, the Bank of England, and the Bank of Canada, thankfully, have all been more cautious on such projects.
The digital euro will be for most intents and purposes is proposed to be like any online wallet or bank account except it will be free to use and guaranteed by the ECB rather than a private company, making it safer.
One of the key complaints is that a digital currency may facilitate a run on commercial banks at times of crisis while providing little improvement compared to existing accounts.
The ECB contends that the digital euro will introduce competition into the payments market, which is currently dominated by US credit card companies.
According to the information available so far I have seen, the ECB seems to envisage a payment system in which one can only pay with a deposit in the form of the digital euro.
The digital euro will distributed by the ECB as well as commercial banks and digital wallet providers. It will only be available to residents of the euro area and its citizens abroad, which addresses concerns about mass adoption in countries where the local currency is weak.
What could make such a system prevail over Paypal, credit cards and so on? One argument is that it could process payments at more favorable conditions than the U.S. platforms, which indeed make high profits.
This argument appears weak to me as consumers in eurozone member states already have the option of using many low-cost payment systems for simple transactions.
Perhaps one must look at China to understand the real threat CBDCs pose. China was the first country to seriously launch a CBDC, which since 2020 has been paying the salaries of public employees in e-yuan.
The e-yuan gives the government huge control over economic transactions, which of course enhances the claim of China being a totalitarian surveillance state.
Worryingly and not surprisingly, they are fully traceable, also programmable, which would make it possible, for example, to create money that expires on a certain date.
As China becomes more powerful on the global stage, the thought of this type of monetary control system becoming widely accepted is no longer just a thought experiment.
My feeling is that the danger in CBDCs is that there is no limit to the level of control that the government could exert over people if money is purely electronic and provided directly by the government.
A CBDC would give federal officials full control over the money going into–and coming out of–every person’s account.
This level of government control is not compatible with economic or political freedom.
How does this relate to 2024? It is very relevant, as crypto would therefore become more mainstream, and it could certainly make Bitcoin more attractive for the uninitiated.
Especially interesting would be countries that stand up and oppose CBDCs for investment and relocation, and those
that use, like, and consider BTC as a payment option.|
