Regulators want to sell us the image that digital currencies linked to central banks will empower citizens, but at 11Onze we have long warned that the reality seems to be moving in the opposite direction. A Washington DC-based think tank has just published a report warning that CBDCs pose a threat to our fundamental freedoms.

Projects to introduce central bank-issued digital currencies (CBDCs) are spreading across the global banking sector. Unlike cryptocurrencies such as Bitcoin, CBDCs are not decentralised but are controlled by the central bank of the issuing country. These digital currencies will be subject to the same regulations as traditional currencies and are intended to consolidate government control over payment systems, now threatened by the rise of cryptocurrencies.

Proponents of CBDCs argue that they would improve the efficiency and security of financial transactions, reducing transaction costs for businesses and consumers compared to fiat money. On the other hand, they argue that they could help reduce the shadow economy, since they would be less anonymous than cryptocurrencies and, unlike cash, are fully controllable by the state. Moreover, they say, they would foster greater financial inclusion, allowing easier and safer access to banking products.

In this context, a recently published report by the Cato Institute, a Washington DC-based think tank, analyses the risks of central bank-issued digital currencies and concludes that “CBDCs threaten fundamental freedoms”, as “many of the potential benefits touted by their advocates do not stand up to scrutiny” and that the US Congress should oppose any government plan to issue a CBDC.

Destabilising the free market, more control and less privacy

According to the Cato Institute study, the main arguments against the development of a CBDC issued by the US government include fears about its ability to track and control the citizenry, cybersecurity and the potential destabilisation of the free market. Specifically, the government would have unprecedented control over the economy and our money.

The Washington DC-based think tank’s expert analysts point out that supporters of CBDCs who argue that they would improve financial inclusion ignore the innovations that are already taking place in the private sector, as well as what Americans who are not part of the current banking ecosystem really want. A segment of the population that in surveys says is not interested in having a bank account because it doesn’t have enough money, because it wants to protect its privacy, or because it distrusts banks in general. Concerns for which a CBDC would not represent a solution, but rather the opposite.

Moreover, while they recognise that faster settlement of the payment system in the US is a laudable cause, a CBDC would not bring a unique or even additional benefit compared to existing developments in the private sector. Still, it would pose a substantial threat to the privacy and financial freedom of citizens, which has already been eroded for decades.

The institute wants to make clear that “laws designed to fight terrorism, prevent money laundering and collect taxes provide the government with the ability to conduct unchecked surveillance of financial information”, but the introduction of a CBDC could mean the end of what little protection citizens still have left, “as it would give the federal government complete visibility into all financial transactions by establishing a direct link between the government and the financial activity of every citizen”.

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