The Rise of CBDCs: The Natural Evolution of Money or Serious Government Overreach?
With Blockchain utility expanding at a rapid rate, it's no surprise that centralised entities are looking to implement this technology early and take advantage of the hype. While Bitcoin and the decentralised finance (DeFi) ecosystems aim to disrupt and even replace the centralised banking sector, Central Bank Digital Currencies (CBDCs) may end up being the modern version of fiat currency we know and use today.
Advantages of CBDCs
One of the biggest advantages of CBDCs being pushed is that they can greatly increase financial inclusion. In many countries, a large percentage of the population, called the Unbanked, does not have access to traditional banking services, making it difficult for them to participate in the ever-growing digital economy. CBDCs can help to address this issue, as they allow anyone with a smartphone or similar device to access and use digital currency.
Another advantage of CBDCs is that they can increase financial stability. By creating a digital version of their currency, central banks can better monitor and control the supply of money in circulation. This could help to prevent financial crises caused by excessive money printing or counterfeiting, as well as reduce the risk of bank runs. Additionally, CBDCs can reduce the cost and complexity of cross-border transactions, as they would allow for near-instant and cost-effective transfers between countries.
I would argue, however, that Bitcoin operating on the Lightning Network already solves for both the Unbanked and the corruption that exists in the fiat world, and that the creation of a CBDC for each nation is entirely unnecessary.
CBDCs also have some serious disadvantages that must be considered, as they could end up causing irreversible damage to both the global economy and society as a whole.
Disadvantages of CBDCs
One of the biggest concerns is the infringement on individuals' rights to privacy. CBDCs could potentially give central banks access to a vastly greater amount of personal and financial information than they already have, which could then be used to monitor and control individuals. Additionally, there's the concern around security. Digital currencies are already vulnerable to cyber-attacks and hacking, and with users being required to provide additional personal information in order to have bank accounts, this opens users up to further vulnerabilities, risks of financial loss or the public exposure of what should be private information.
We also need to unpack other things that are now being considered for coupling with the rollout of the CBDC.
Universal Basic Income
The idea of a Universal Basic Income (UBI) involves providing every individual with a guaranteed minimum income, regardless of their employment status or other circumstances. While the concept has gained increasing attention in recent years, there are both advantages and disadvantages to the implementation of a UBI.
One of the key advantages being touted is that the UBI has the potential to greatly reduce poverty and inequality. By providing everyone with a basic level of income, individuals would have a safety net to fall back on, which could help to reduce financial stress and insecurity. Additionally, UBI could help to stimulate economic growth, as people would have more disposable income to spend on goods and services. This increased demand could help to create new jobs and boost economic activity.
Another promoted advantage of UBI is that it could simplify the welfare system. Currently, many countries have complex and often confusing systems of benefits and subsidies, which can be difficult for individuals to navigate. UBI would supposedly provide a straightforward and easy-to-understand system that would ensure that everyone has a basic standard of living.
Disadvantages of UBI
However, there are also several disadvantages to the idea of UBI that I believe far outweigh these perceived benefits. Asides from the unknowable cost of implementing such a program (providing a basic income to every person in a country could be extremely expensive and would likely require significant government spending - where is all that money going to come from? Greater government debt or higher taxes?), the main concern is around the disincentavization of people to engage in an occupation. If people are provided with a guaranteed income, rather than the supposed creation of jobs that come with an increase in consumerist demand, people may actually be less motivated to seek employment, work additional hours or strive to better their position and climb the ladder.
This could lead to a decrease in labour supply, which could negatively impact economic growth but, let's be honest, the removal of the natural inclination for individuals to drive to succeed, develop and grow would be detrimental to the advancement of civilisation in ways we cannot even begin to imagine.
On a smaller scale, some people may use their UBI payments to engage in activities that are harmful to society, such as drug abuse or crime. As if we need more of that?!
This brief video by Rebecca Paul, Surrey County Councillor and Cabinet Member of the Conservative Party, says it all:
Social Credit and Carbon Footprint Monitoring
The idea of a social credit system, which involves the monitoring and evaluation of an individual's social behaviour and personal data, already exists in some countries and I believe it to be both a serious invasion of a person's privacy and an elitist, authoritarian abuse of personal sovereignty and freedom of choice.
At the same time as considering the link between programmable money dispensed by centralised entities and a government-controlled social credit system, we also need to address another concept that's gaining attention: The monitoring and evaluation of an individual's personal carbon footprint.
This concept would measure the total amount of greenhouse gases an individual produces. However, we already know that statistically speaking, the annual carbon emissions of corporations and those with access to private jets are far greater than the average human being produces in their lifetime. According to the Global Reporting Initiative, the top 100 emitting companies are responsible for over 70% of global greenhouse gas emissions. These emissions are primarily driven by the production and use of fossil fuels and other industrial processes.
A World Bank study found that a person's average carbon footprint in the United States is approximately 16 metric tons of CO₂ per year. In comparison, a single large corporation can emit hundreds of thousands or even millions of metric tons of CO₂ per year. Granted, corporations produce in order to provide for society's needs and demands, however, there could be greater strides made in the reduction of corporate emissions long before we need to even consider monitoring and restricting individuals' carbon footprint.
@DarinFeinstein on Twitter, says it right:
To go deeper, as an example, a social credit system that is linked to individual carbon emissions under the guise of promoting positive behaviour and sustainability could mean that individuals who engage in pre-approved "environmentally friendly" activities could be rewarded with higher social credit scores.
On the other hand, individuals who engage in harmful activities, such as littering or excessive energy consumption, could receive lower scores. Those with lower scores might have their UBI revoked or might have restrictions on engaging in activities or consuming items that are deemed to have a higher carbon footprint, such as driving, the use of gas for heating and cooking, or purchasing animal products that are heavily farmed.
Can you imagine your electricity being shut off or your card being declined at the supermarket or petrol pump, even if you have the money in your account ready to spend? How long would you have to wait in order to see your social credit redeemed? The thought is horrifying.
Perhaps one solution is for companies that sell carbon credits to corporations to also make the issuing of credits available to individuals, and maybe even digitise their carbon sequestration and minting of credits by way of NFTs to help individuals that want to offset their environmental impact take matters into their own hands.
Surely this is a better option? Empower people to put their freedom of choice to use, rather than restrict and penalise them unnecessarily.
By collecting and monitoring personal data and social behaviour, social credit systems would infringe on individuals' privacy rights and at the same time, the accuracy and reliability of the data used to determine social credit scores and personal carbon footprints may be subject to manipulation or error. While we can all do our part to reduce our negative impacts on the environment, in my opinion, when coupled with CBDCs, this bogus idea would mark in history the moment when those who live to serve the people overstepped the mark.
If these systems can be used to discriminate or exert control by denying individuals with low credit scores access to certain services or opportunities, we will head in the opposite direction - towards further inequality and division.
Closing Thoughts…
In conclusion, the release of CBDCs, UBI, social credit systems and the monitoring of personal carbon footprints can be perceived as progressive and a major step in the advancement of civilisation as we know it, however, they also have the potential to drastically infringe on privacy rights, open us up to an untold number of vulnerabilities, cause social division, be used for discriminatory purposes and perpetuate a severe dampening of the human spirit.
It is important to carefully evaluate the potential but far-reaching costs and benefits before implementing these systems and only if it can be proven that the benefits far outweigh the costs and that the majority of society agrees, it's also imperative that we, as a people, ensure that they are designed in a way that protects the rights and interests of individuals now and for generations to come.