CBDCs: A brave new world

Episode XII. Block height: 800000. Central bank digital currencies, the worst idea since communism. From pure fiction to reality and what it means for your financial freedom.

Jul 24, 2023

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Imagine a world where you can't buy anything without the (implied) consent of the state, where every transaction is recorded and stored forever in a database that the government controls. A world in which you could be forced to buy things the state favors or be excluded from those the state doesn't like. A world where money no longer buys freedom, but is a means of total control over your every decision, action and movement. This world may be closer than you think. Big brother is watching, and this is just the beginning.

Numerous governments across the globe working on central bank digital currencies, more commonly known as CBDCs. In fact, a total of 130 countries representing 98% of the global economy are now exploring digital versions of their currencies, with almost half in advanced development, pilot or launch stages, due to research by U.S. based Atlantic Council think tank. CBDCs are no longer a nightmare, they are reality.

This is an ominous development for citizens, since CBDCs represent a gateway to surveillance and control that will prove irresistible to most governments. Thus, CBDCs are a serious threat to financial freedom and privacy. And these concerns are not voiced by conspiracy theorists alone, but by the powerful masters behind our fiat system themselves, above all Fed Chair Jerome Powell. He acknowledged the privacy concerns with a CBDC and noted, for instance:

We would not want a world in which the government sees, in real-time, every money transfer that anyone makes with a CBDC.

Furthermore, Augustín Carstens, the general manager of the Bank for International Settlements (BIS), has bemoaned privacy concerns of CBDCs by pointing out:

With a CBDC, central banks have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and thus we will have the technology to enforce that.

Clearer on the potential of programmable government money is Bo Li, deputy managing director of the International Monetary Fund (IMF), who advocated for the implementation of CBDCs:

CBDCs allow government agencies and private sector players to program targeted policy functions, such that money can be precisely targeted for what people can own.

Thus, major building blocks of the old Fiat System, are pushing to implement CBDCs, because they fear losing control of the monetary system. And of course, the institutions in the West don’t get tired to pray to value privacy and integrity, not abusing the new power they will soon have over every citizen. I truly hope, after the discoveries of Edward Snowden and Julian Assange, no one on this planet believes those prayers. Of course, sooner than later, they will use this new tool for surveillance and manipulation. But first things first: What is a Central Bank Digital Currency (CBDC)?

Central Bank Digital Currencies

A CBDC is a digital currency provided by the government. It is a direct liability of the central bank. In the United States, for example, a CBDC would be a digital form of the U.S. Dollar.

Make no mistake, a CBDC is not just a different form of currency. A CBDC would fundamentally differ from existing fiat moneys because it would establish a direct line between citizens and the state, a digital tether, recording every single transaction on its ledger, transmitted in real-time to your beloved and trustworthy ruler. What is the difference to Bitcoin?

Decentralized Digital Currencies

Whereas CBDCs are controlled by one single entity, Bitcoin is a digital currency controlled by no one. At its core, Bitcoin offers a way to digitally store and exchange value in a manner secured through cryptography rather than the government or third parties.

Bitcoin is decentralized, open, and permissionless. With Bitcoin, there’s no group or individual to freeze or seize your funds. This freedom goes beyond using Bitcoin for spending or saving: You’re also free to step in to help maintain the inner workings of the system by mining or running your own node. You are able to enforce and verify the rules of the Bitcoin protocol yourself.

Where CBDC is the epitome of centralized money provided by the government for surveillance, Bitcoin is the best modern example of decentralized freedom money provided by the market.

As you see, centrally controlled CBDCs are fundamentally different to the decentralized, open and permissionless characteristics of Bitcoin. CBDCs take the idea of cryptocurrencies and transform it into something not even George Orwell could have imagined in his wildest totalitarian nightmares. But what makes CBDCs so dangerous?

Surveillance State

First and foremost, CBDCs are raising huge privacy issues, as they enable governments to monitor every financial transaction and track individual spending habits more easily and on a very broad scale. Regardless how they are finally implemented, it will always be a ledger where transactions are monitored and tracked.

Even if government officials preach that they are not going to use this data in any shape or form, we all know by now that governments can’t be trusted. Just as they are currently trying to block access to social media during protests, they will try everything in their power to prevent the impending demise of their national currencies.

And even if current governments would credibly commit to value privacy, governments change and so do their policies, as a result this data could be accessed later by even more authoritarian regimes. The temptation around the globe is far too great to be hindered by data protection promises. If the chances of switching to cash becomes more difficult or no longer possible, criticism of the government can lead to blocking of accounts and thus to exclusion from society.

Totalitarian Government

Another concerning fact with CBDCs is that they give central banks significant control over the financial system, leading to further concentration of power to unelected officials. Even though we Bitcoiners are always bitching about the current banking system, it currently ensures at least a certain amount of decentralization because central banks do not have direct access to individuals but have to cooperate with commercial banks.

This will change dramatically when CBDCs are introduced, because then everyone has a direct account with the central bank. Of course, at the beginning this will be limited to a certain amount, but once people get used to it, central banks will start advertising that your money is safer than anywhere else. So why have an account at smaller commercial banks when you can have the safest bank account in the world for free?

If CBDCs are designed in a way that allows direct transactions between individuals and the central bank, it significantly reduces the role and importance of commercial banks, impacting their profitability and stability. Sooner or later, smaller commercial banks will be gone and there will be a concentration of a few very large banks beside the central bank, giving them uninterrupted power over your financials.

The centrality of the system also increases the influence of central banks, which allows them to introduce monetary policy much more precise. Like for example, if the economy is doing bad and, you saved 10k, with a CBDC governments easily could introduce negative interest rates to force spending for certain individuals, without changing the interest rates for others. Or as seen in China, make ‚your‘ money disappear after a certain period of not spending.

Programmability

This brings us also to our next and most irritating ‚ feature‘ of CBDCs, called ‘programmability’. The fact that CBDCs, in comparison to Bitcoin, are centrally controlled means that a single entity can, without further consensus, program the currency as they see fit. The programming capabilities of a CBDC could mean that people would be prohibited from buying certain goods or limited in how much they might purchase.

It’s very important to consider the extended possibilities of such a tool. In the case of the government‐mandated lockdowns during the COVID-19 pandemic, for example, a CBDC could have been programmed to only exchange with ‚essential’ businesses or alert the authorities when citizens incurred travel expenses. Or think of the Canadian truckers, who have simply had their bank accounts frozen during protests. With a CBDC, it would be even easier and more serious to block accounts and expropriate protesters. The possibilities for the programmability of a CBDC are nearly endless. And in all of them, even the best of intentions are just a few steps away from totalitarian control.

It is very important to understand that governments are going to introduce CBDCs in steps, so citizens do not realize the significant thread to their fundamental rights. It’s like putting a frog in a cold water and start heating it up gradually until he dies, not realizing the small incremental changes of temperature. To put it with the words of former President of the European Commission Jean-Claude Juncker:

We decide on something, leave it lying around, and wait and see what happens. If no one kicks up a fuss, because most people don't understand what has been decided, we continue step by step until there is no turning back.

Carbon Credit System

And here is exactly the point where it gets very dangerous: I think CBDCs are just the first stepping stone to introduce social scoring systems linked to ‚good‘ behavior regarding the environment. Simply speaking, every citizen will be credited a certain amount of CO2 credits each year. Those credits will be reduced over time to meet CO2 targets. Credits will be deducted whenever you do something “harmful” i.g. something that emits CO2 or simply something the government doesn’t favor. If you used all your carbon credits you are not allowed to emit any CO2, which means no more meat, no plane tickets, … Simply speaking, absolute control and surveillance in the name of saving the planet.

The government playbook is always the same through history: [1] First the state will create incentives for CBDCs to be used: Only those who have an account are granted government money, introducing certain tax breaks and so on. [2] Secondly, it will also use media to further fuel climate hysteria and thus persuade people that a Carbon Credit System is the only solution to save our planet. And [3] thirdly, all other payment options like Cash or Bitcoin will further and further be criminalized (Money laundering; bad for the planet; …) so that the only option that is left are CBDCs. You will own nothing and be happy, until ‚there is no turning back.‘

This may sound ridiculous, but once CBDCs are introduced and Cash is gone, implementing a carbon credit system would be just a very small stepping stone away. And the craziest thing about it all, I think, most people would support such measures, as we have already seen with the Covid madness.

Conclusion

CBDCs have the potential to radically transform the current financial system. It poses substantial risks to financial privacy, financial freedom and free markets. Yet the purported benefits fail to stand up to scrutiny.

Even if you dismiss these risks as unrealistic or conspiracy theories, you always have to ask yourself with such potential dangers, what is the advantage for you as a citizen if governments suddenly issue a digital token? Do the benefits outweigh the risks? Put simply, there is no reason for the federal government to issue a CBDC when the costs are so high and the benefits are so low and we all should stand together and fight this totalitarian governments dream.

Bitcoin is, so to speak, the antidote to central bank tokens. It's decentralized, so it can't be turned off, it's permisseless, and it's available everywhere around the globe. Once Cash is gone, it is your only option to make payments without permission from a central authority. So what can you do? Embrace Bitcoin, stack sats, and run your own Bitcoin Node.

The End

That's it for this episode. I hope you gathered some valuable knowledge from this one. Keep stacking and embrace financial freedom.

Thanks for reading and see you hopefully in the next one. Until then, remember: F* central bank digital currencies and embrace open-source freedom money.

₿ critical, ₿ informed, ₿ prepared. Yours,

B informed

[XI] Valuing Bitcoin

[X] The Adoption Dilemma

[IX] NOSTR: Social Media 2.0

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