Are central bank digital currencies a bad idea?

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State-backed digital currencies have become the leading area of exploration by central banks across the world. From economic giants like China to smaller economies like the Bahamas, every other central bank has either launched a pilot or is conducting research on the implications of a central bank digital currency (CBDC). However, while they are being touted as the future, it’s time to rethink and reevaluate the role that CBDCs will play in the future of finance.

By now, it’s crystal clear whether CBDC’s will be here in the future is a matter of when, not if. As Citibank’s outgoing CEO recently stated, CBDCs may be the “inevitable future of money.” The Bahamas launched the world’s first CBDC recently; China is already conducting CBDC trial, the European Central Bank has announced plans of a CBDC launch.

A Black Mirror future, or worse

One of the immediate impacts of CBDC rollout will be a rise in the government’s stranglehold on the monetary system. These sovereign digital currencies will be minted by the central banks directly to the consumers. As such, the government will be able to directly dictate the flow of money in the economy, from the moment a digital token is minted.

Some of the implications of this increased control will be the weaponization of the monetary system. This may seem far-fetched, kind of like something you would only see on Black Mirror. However, it’s already here.

China is the best example. Xi Jinping’s government has stirred up many controversies, but the social credit system is one of the biggest. This system rates citizens depending on their behavior, such as whether they pay their mortgages in time. It even extends to minor and personal things such as standing up a taxi.

The implications are real. Low social credit scores could deny you some government services such as investment permits, education opportunities and tax rebates. As per a 2019 report, the Chinese government has used the rating system to deny over 26 million air tickets and 6 million high-speed rail tickets to people with ‘unacceptable ratings.’

Now, instead of denying ‘untrustworthy’ individuals a plane ticket, it will cut them off from the money supply. This will be easier than ever, with the central bank supplying, controlling and tracking the digital currency.

It will come as no surprise when a CBDC user tries to pay for a product or service only for the payment to fail. And while this may apply to criminals (which some may consider a positive), it may also apply to someone who just expressed a view on social media that the government simply doesn’t like.

Have we learned nothing from Big Tech?

The CBDC race comes at a time when the world has recognized, and is fighting back against, the power of the Big Tech firms. The most renowned members of this group are Google, Facebook and Amazon. There are many more, however, which mine our data and end up using it either against us to manipulate our purchasing habits or to benefit themselves by selling it.

One of Big Tech’s biggest weaknesses is how they make all of us vulnerable to attackers by storing our data in centralized servers. Yahoo has been the biggest victim, with multiple hacks exposing over three billion records to cybercriminals. Equifax, River City Media, Zynga and even the Republican National Committee have all exposed hundreds of millions of records to hackers.

With CBDCs, not only will your social media profile be accessed in a hack, but your entire financial profile as well.

With all these risks, and many more, it’s quite clear that CBDCs in their current form will just make central banks an even more powerful centralized entity.

However, Bitcoin SV may be the solution, Drawbridge Lending CEO Jason Urban believes. During a panel discussion on CoinGeek Live, he explained:

“The vast scalability of BSV is very important for financialization of anything. The sky is the limit as to what’s next. All the things we see in the traditional financial space will eventually bleed into this space. It will make for a more robust system, a more useful ecosystem. And it will allow people to extract value in the way that it is important to them because everyone has a different need and a different use case.”

To learn more about central bank digital currencies and some of the design decisions that need to be considered when creating and launching it, read nChain’s CBDC playbook.

See also: CoinGeek Live panel on The Future of Banking, Financial Products