No way CBDC!
Is the future of money a programmable one? Enter central Banks CBDC’s (Central Bank Digital Currency) and they will definitely be controlled by central banks and the BIS (Bank of International Settlements).
For instance, the Nigerian government has launched the eNaira for deployment as CBDC’s and many have embraced this development while ignoring the danger that comes with it. I have to mention that making fiat currency completely digital does not make it different from the former “fiat” paper.
So lets start with the problem inherent within the current monetary system, which is the debasement of the value of money. There are many reasons that have caused fiat currencies around the world to lose most of their value in a relatively short time frame. In Nigeria just like many countries, we are pegged to the US Dollar so the recent trend of money printing by the Fed will undoubtedly catalyze this debasement and cause a ripple effect in remote areas of the world. Smart money will continue to increase their wealth via hard assets and the poor, who mostly hold cash in savings through the banks, will end up poorer as their purchasing power will be eviscerated.
The net result of this will be a monumental increase in the inequality gap between have nots and haves. Of course, all these will reverberate in the economy causing socioeconomic problems like the increase in crime, scams, migration and unemployment. Not so simplistic, hold on to your mitts about the current challenges we are grappling with;
'“Government bonds globally are yielding close to 0%. There has been a trend to zero in the past 30-40 years or negative yielding bonds in Europe currently and we’re finally reaching the tipping point.
Governments need to pay off debt and so they have moved to relentless money printing. This causes inflation and the debasement of their currencies through inflation. Governments also need to control inflation at an average target of 2%. This is quite hard where there is pressure on the supply side (money printing) and an imbalance on the demand side (consumption).
Governments need to increase consumption, decrease latency of money and increase money velocity. They believe this can be effected through absolute control of the money itself. They believe that internal processes can be controlled in a better manner through “programmable money” and the inefficiencies of international trade can also be improved.
Finally, governments want a controlled system, with a controlled instrument to do all of the above. Most importantly, there is a phased-approach that they will likely take to eventually control the populace through money itself”.
Lets move on from identifying the problem to the solution that many governments are looking to deploy; CBDC’s.
“CBDC’s are financial instruments deployed by the central bank of a nation, using the central bank’s balance sheet as the primary account.
They already kind of do this already but it is complicated. Let me explain;
Currently, central banks create money, lend it to banks through repo rates and the banks take over the flow of funds from there.
What is different this time, is that whatever happens with the flow of CBDCs, there will inevitably be debits and credits to the central bank’s ledger itself at the source. In other words, other parties can utilize the central bank’s balance sheet and liquidity, other than banks.
This is possible through “programmable money” that has a set of global rules built into it (like ESG, or Social credit scores) and these are currently live in China and are in the pilot stage (or close to it) in various countries such as Ghana, Nigeria, the U.K., the Bahamas, Lebanon, South Africa, etc.
The difference between CBDC’s and the eNaira or USD is that CBDC’s are programmable money. Programmable money is one in which there are set of rules that are defined by the creator according to laws or rules determined by said creator or government. These are achieved by embedding set of code into the structure of the currency.
As we already see it playing out in China, CBDC’s could;
“Be tracked across every movement, where the account that is credited appends that information to the digital dollar, in perpetuity.
Be stopped, returned to the source, returned to the previous account or even destroyed at any moment.
Have a set of inherent rules at the source, such as a lifespan of one year, and a specified amount of depreciation per unit of time.
Can be credited to only certain accounts, such as users who have a social credit score of > X.”
With the information above, we can surmise that CBDC’s are;
“A way for others to control your money.
A way to control money and the populace through one-sided permission.
A digitized currency that has no limits to the amount of units that can be created or, in other words, has an endless supply.
Has a set of one-sided rules determined by the creators and/or providers.
Centralized and less secure.
Amenable and are easily changed based on monetary policy or even arbitrary rules.
An innovation that can maybe solve a lot in the short term but close to nothing in the long term.
Is the best path for absolute control by governments.”
I will write on the comparison with other proposed solutions that are in existence like Bitcoin and alternative cryptocurrencies in the next “follow the money” series.
See you tomorrow!
- Ope