Central bank digital currencies (CBDCs) are a new form of digital money issued by central banks and intended for use by households and businesses. They are supposed to offer convenience, security and reliability, as well as support financial inclusion and innovation. However, CBDCs also pose serious threats to monetary freedom, which is the ability of individuals and businesses to use money as they wish without undue interference or coercion from the government or other parties.
One of the main threats of CBDCs is that they could enable unprecedented surveillance and control over people’s financial transactions and activities. With a CBDC, the government would become both money printer and bank, destroying any checks and balances to the governments’ power over people’s financial holdings (News Week). By granting the government ownership over the root technology of money, CBDCs allow the government complete discretion over how and whether people can use their money. The government could monitor every transaction, impose negative interest rates, freeze accounts, confiscate funds, impose taxes or fines, or censor payments that it deems undesirable (Bank of England). This level of government control is not compatible with economic or political freedom.
Another threat of CBDCs is that they could undermine the stability and diversity of the financial system. CBDCs could induce massive disintermediation of the banking sector, as people shift their deposits from commercial banks to the central bank (Forbes). This could reduce the availability and affordability of credit for households and businesses, as well as expose the central bank to greater risks and liabilities. Moreover, CBDCs could crowd out private innovation and competition in the payment system, as the central bank would have an unfair advantage over other providers of digital money (CATO Institute). This could stifle financial innovation and diversity, as well as reduce consumer choice and protection.
A third threat of CBDCs is that they could increase the vulnerability and volatility of the economy and the currency. CBDCs could facilitate currency substitution and capital flight, as people switch from domestic to foreign CBDCs or other forms of digital money in response to macroeconomic shocks or policy changes (Be In Crypto). This could undermine the effectiveness of monetary policy and exchange rate management, as well as erode the sovereignty and independence of the central bank. Furthermore, CBDCs could amplify financial crises and contagion, as people rush to withdraw their CBDCs from the central bank or transfer them across borders in times of stress. This could create liquidity shortages and destabilize the financial system.
In conclusion, CBDCs are not the answer to monetary freedom because it does not represent the same economic features and values that Bitcoin does. They are a potential tool for government surveillance and control over people’s money and financial activities. They are a potential source of instability and fragility for the financial system and the economy. They are a potential threat to financial innovation and diversity. Rather than pursuing CBDCs, governments and central banks should focus on improving the existing forms of money and payment systems, while respecting and protecting people’s monetary freedom.
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