Over the past several years, central banks across the world have been progressing towards the idea of creating central bank digital currencies (CBDCs). Major central banks such as the European Central Bank (ECB) and the Bank of Japan (BoJ) have both expressed interest in them, with the ECB even going as far as to publish a report on the risks of not creating one.
Spain’s ruling Spanish Socialist Party (PSOE) has proposed the creation of a research group to examine how a digital euro might work in the Southern European nation. It introduced the Non-Law Proposition as a potential response to the decreased use of physical cash.
What are CBDCs? How would they work?
Central bank digital currencies would be purely digital versions of existing currencies like the EUR and USD. Depending on how each country implements them, they could give central banks and governments unprecedented power when it comes to stimulating the economy, implementing programs like Universal Basic Income, and possibly even collecting taxes in real time.
Theoretically, CBDCs could allow central banks to deliver direct payments to citizens’ digital wallets during economic downturns. They could even allow the targeting of specific geographic or economic areas which are economically depressed.
There has even been speculation that cash injections such as these could be made with digital money which expires or can only be used to purchase certain things. For example, think of welfare payments which can only be used on food, clothing, and housing. CBDCs could also dramatically reduce the role of private banks in the distribution of money to citizens via loans and direct payments.
Indeed, this sort of scenario is in alignment with what Spain’s ruling party is thinking. This can be seen in the following quote by a PSOE representative linked to the project.
“In the event that a monetary expansion is necessary, it allows a more direct mechanism by injecting liquidity directly into current accounts and thus transferring it immediately and without intermediaries to economic activity.”
Since CBDCs are still an idea in development, all of this is speculation, but the concept of programmable money talked about often in the digital currency space would certainly allow for much more flexibility than the current system.
Concerns about privacy liberty and surveillance
It doesn’t take too much imagination to see how CBDCs could give governments the type of power that makes privacy and liberty advocates uncomfortable. With the ability to bestow digital money on the population comes the ability to withdraw it.
Some have questioned whether governments would be able to put conditions on citizens in exchange for payments and whether they’ll be able to track, trace, and direct the economic behavior of large swathes of the population.
Certainly, these questions should be considered, debated, and weighed up before any mass-scale rollout of CBDCs, but with the innovation happening in the digital currency space today, it seems inevitable that CBDCs will become a reality in the not-too-distant future.
A subtle hit in Spain’s proposal?
When introducing the Now-Law Proposition to the Spanish Congress, the party stated that new trends in money and payments have led to a “purely private and more insecure money.” It went on to state its intention to “restore money as a public good, more stable and under democratic control.”
It’s fairly obvious that Spain’s ruling party is taking aim at so-called “cryptocurrencies” here. What else could they be referring to when talking about private, insecure forms of money?
It is true that BTC and most other popular digital currencies are both private and insecure since they are run by networks of anonymous actors who are determined to fly in the face of existing laws and regulations for political purposes. This isn’t likely to sit well with any legitimate political party, much less a socialist one like the PSOE.
Will the ECB control the digital euro?
It remains to be seen how Spain’s digital euro would work or how it might tie in with the ECBs existing plans. However, it’s noteworthy that the ECB did recently appoint the Bank of Spain and its stock market regulator (CNMV) to oversee “crypto-assets” in the country.
The PSOE was careful to emphasize that the digital euro could be implemented “without the nationalization of the banking system…or of credit.” This suggests the ECB would still have ultimate control of the project.
Given the ECB’s well-known insistence on compliance with regulations, including strict KYC/AML laws, it’s easy to conclude that BTC and similar projects will not fare well in Europe in the long run.
Bitcoin must comply with law
Some nations like El Salvador are embracing BTC, at least in theory, but it’s clear larger and more powerful governments aren’t going to be so keen on digital currencies they can’t control.
While some BTC advocates might argue that this is the entire point of Bitcoin, its inventor has insisted from day one that Bitcoin must comply with existing laws, work with governments, and that national currencies could even be built on top of the infinitely scalable blockchain now known as BSV enterprise blockchain.
Central banks and governments will eventually have to figure out how to make their CBDCs workable and interoperable. Building them on a blockchain which has been purpose-built to comply with laws and regulations and allow for maximum transparency is one potential solution.
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.
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