- In a new book, policy analyst Nick Anthony discusses the implications of digital fiat currency.
- Central bank research into CBDCs has quadrupled in the last four years.
- Anthony says technology is not the solution to a complicated cross-border payments system.
CBDCs will bring few or none of the benefits touted by entities such as the International Monetary Fund, and may pose a significant risk to privacy and personal freedom.
This is according to a new book, “Digital Currency or Digital Control? Decoding CBDC and the Future of Money,” by Nicholas Anthony, policy analyst at the Cato Institute’s Center for Monetary and Financial Alternatives.
“There should be no misunderstanding: efforts in the United States and abroad are little more than an attempt to solidify government control over money and payments,” he wrote.
Exploring CBDCs
Interest in CBDCs, which stands for central bank digital currency, among monetary policymakers is increasing.
A total of 134 countries and monetary unions are exploring CBDCs, almost four times more than in May 2020, according to the Atlantic Council.
This includes 19 of the G20 countries and the five founding members of BRICS, the club made up of Brazil, Russia, India, China and South Africa.
China, which began evaluating CBDCs in 2013, has implemented pilot programs in 25 cities.
Still, the projects have had difficulty getting off the ground. In China, merchants in pilot cities remain baffled about what exactly e-CNY (the digital yuan) is, and most people have only heard of it in passing.
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The Eastern Caribbean Central Bank’s prototype, DCash, suffered an outage between January and March.
And in the United States, CBDC development has stalled amid growing concerns about how they could affect people’s rights.
Anthony says more needs to be done to ensure CBDCs do not become entrenched in the financial system.
“The problems we have with the current cross-border system are based on political choices.”
— Nicholas Antonio, author
“I am very concerned and I think this is a real risk around the world,” Anthony said. DL News.
He is asking people to start speaking out against CBDC projects.
“Because if that happens now, we can change the outcome a lot, both in terms of the final form they take and whether people will use them or not.”
What is the point 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 argue for financial issues and the like, but once you get to the next level of that conversation and get into the details, it just doesn’t hold up,” he said.
In the United States, for example, 72% of the country’s 5.9 million unbanked households are simply not interested in having a bank account, according to a survey by the Federal Deposit Insurance Corporation.
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 believe they’ll enjoy more privacy without one.
There is nothing, Anthony argues, inherent in a CBDC that can change this.
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 decisions,” the author said. “The barriers that currently exist across borders are largely decisions that have been made by federal governments.”
“There are other ways to solve this that don’t involve reinventing money, such as reevaluating the Bank Secrecy Act regime and relevant regimes abroad,” he added.
Programmable functions
What really worries Anthony is how CBDCs could control or restrict consumers’ financial decisions.
Last October, Lu Lei, deputy administrator of China’s State Administration of Foreign Exchange, advocated the use of “programmable functions” in its CBDC.
And Thailand considered a CBDC pilot that would have given citizens several thousand baht to spend but would restrict spending within a certain radius of their homes.
Anthony offers the scenario in which governments could reduce excessive alcohol consumption by limiting the number of drinks a person can purchase.
“If you get rid of all those functions for governments and there are no functions for citizens, then what are we doing?”
— Nicholas Anthony, author
“These types of paternalistic policies may seem attractive to some at first glance, but they can quickly unravel or have unintended consequences. For example, how would you 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 retailers, or even introduce negative interest rates to push people to spend rather than save.
“It opens up this new set of tools that they wouldn’t otherwise have. But those tools come at our expense,” he said.
Out of style
He said that discussion about programmable features has fallen out of fashion among Western governments in recent years.
“What we’ve seen is that from 2016 to about 2021, those ideas were put forward quite openly. Now that we’ve had this slow rise in concerns, they’ve receded a bit,” he said.
This has brought the argument for CBDCs into another “uncomfortable space.”
“If you take away all these features that were going to benefit governments, and there are no features that are going to benefit citizens, then what are we doing?” he said.
“It literally makes you scratch your head.”
Callan Quinn is DL News Correspondent in Hong Kong. Contact her at [email protected].
