In response to Bitcoin and cryptocurrencies becoming mainstream, many governments around the world are working on developing a Central Bank Digital Currency – a CBDC.
The benefits of a CBDC:
- Reduce the cost of printing and distributing cash.
- Increase financial inclusion – bank the unbanked (of which there are billions in the world).
- Automated collection of taxes, which could increase money in the federal government’s coffers.
- Possibly earn interest on money in your federal CBDC account.
- Automated paying of refunds, employment/welfare/pension benefits, etc.
- If global payments are allowed, make remittances from ex-pats to “back home” quicker, easier, and cheaper.
- Easy, instant access to federal money – into or out of your account.
- Combat financial fraud and crime.
- Take banks out of the equation.
The risks of a CBDC:
- Increased inflation because governments can easily create money and send it directly to citizens.
- Increased centralization and vulnerability to hacking.
- Loss of privacy – the government has access to your digital wallet.
- Reduction and possible elimination of cash – this is another mark in the “loss of privacy” column.
- Expiration date on money – use it or lose it. Governments are very interested in this aspect – governments want people to spend money. Saving money or paying down debts doesn’t stimulate economic growth.
- Restrictions on what the money can be spent on.
- Possible negative interest rates on money in your CBDC account – that is, the government will charge YOU to leave money in this account, since they want you to go spend that money and stimulate the economy.
- Automatic collection of fines, child support payments, student loans, etc. Paying what you owe doesn’t sound like a bad thing, but you will have no control over it.
There is no doubt that there will be benefits to citizens with a CBDC. The more interesting question is, will the benefits outweigh the risks? One of the ways we can make sure the benefits outweigh the risks is to keep cryptocurrencies available to the general population, so people have choices, and don’t just have to use what the government is offering. Something to be aware of – governments are likely to want to restrict cryptocurrencies after they put a CBDC into place. Be aware that CBDCs are NOT a cryptocurrency, and we need both for financial freedom.