I see a bad moon rising
If you thought surveillance capitalism was a bad invasion of personal data and privacy, money in the form of track and traceable central bank digital currencies (CBDCs) will provide government agencies with a wealth of personal data that many people believe should be kept private. They will know where and when we spend it, what on, even render the currency valueless to deny certain transactions taking place, control the value of and the money in our digital currency accounts, and access it to take it from us when they choose to.
Some of this intrusive denial of privacy is not new. On a visit to Norway, in pre-digital days, I found there was a member of the police force posted in every shop selling alcoholic drinks for home consumption. If they thought anyone was buying an excessive amount they wanted to know why, and if it was for inviting guests round they wanted your address. Your guests would invariably find themselves stopped at the end of the road to check if they were fit to drive home. Fintech means this process could soon be automated through a digital currency issued and controlled by Norway’s state bank, matched to everyone’s compulsory digital identity. Norway’s State Statistics bureau has said they aim to track everyone’s food and drink purchases for “use by health authorities.”
This is not futurist science fiction, this is already happening. Some people in neighboring Sweden have a credit card that tracks carbon emission levels associated with items purchased. When any card-owner’s cumulative purchases exceed the allowed carbon emission limit in a given period of time, the card will stop working. This DO Black card is the result of collaboration between the Swedish company Doconomy and Mastercard – who are actually part-owners of the company. Mastercard is developing tech that could be rolled out virtually anywhere.
Who is involved in CBCDs?
Almost 100 countries are actively evaluating central bank digital currencies (CBDCs), according to the IMF, and some have already started rolling them out. Others are being launched in test phases.
Of course it was Bitcoin that started this off. Its eventual meteoric rise in value (which led the whole crypto market) made it much more an investment asset rather than a transactional tool, and it attracted scorn and warnings from the financial establishment who did not want their dominance of the status quo to be disrupted or threatened. World leaders have a vested interest in protecting their fiat currencies, and several nations criminalized trading in cryptocurrency, or at least made it more difficult, to prevent it undermining their policies. How happy they were to see the crash of cryptocurrency values in 2022.
Yet it is some of those same countries that have been the fastest to develop their own digital currency. On April 2, 2022, the People’s Bank of China (PBOC) announced it was expanding its digital yuan pilot program to 11 more cities, including the six that will host the 2022 Asian Games in September 2023. An app is freely available for anyone to download and use in any of the pilot cities. It can also be used through the Tencent-owned messaging app and payment platform WeChat.
China also has a desire to undermine, or at least have an alternative to, the “Western-controlled” SWIFT system (Society for Worldwide Interbank Financial Telecommunication) for cross-border payments and transfers. The SWIFT ban against some Russian banks is one of the sanctions against Russia imposed by the European Union and NATO, aimed at weakening the country’s economy after its invasion of Ukraine. China’s digital yuan holds the potential to “subvert global personal payment methods, reshape the trade settlement system and reform the global currency issuance mechanism,” said Huang Qifan, VP of the China Center for International Economic Exchanges.
However, as an example of the darker side of government controlled digital currency, Chinese authorities have an option to apply expiry dates to the digital yuan, which would force people to spend them or lose them as a way to fuel consumer spending when it is deemed necessary. Perhaps it’s also a potential way to penalize people identified by facial recognition cameras for jaywalking, dropping litter, or anything else the state wants to enforce to control personal behavior at a micro-level. Perhaps they will also consider programming the digital currency to be valid only for certain purchases, or block its use at specific retailers they decide deserve punishment.
China is a country where individuals have little say in government decisions and actions, and developing a digital currency in more democratic nations is lagging behind. Dangerously so, say some pundits in the US and UK. Others argue that CBDCs are not required at all, and that the often quoted benefits of faster and lower cost transactions, cross-border payments, and so on, are served well enough by a range of new fintech digital service providers.
In May 2022, the President of the Central European Bank was on record as saying Bitcoin and other cryptocurrencies are “worth nothing.” The European Central Bank has since enlisted Amazon to help develop and test a digital euro: how reassuring is that?! ECB statements have explained that the digital euro will only be successful if it can be used by Europeans in their everyday life, alongside cash rather than replacing it.
The benefits put forward
Governments and their central banks put forward familiar benefits and reasons for adopting CBDCs. Some are benefits for the general public, some are benefits for the tax system and criminal authorities
- Security of a government-backed currency
- Ensuring financial inclusion, particularly where access to the banking system is difficult to access
- Minimizing the cost of currency
- Making cross-border transactions faster and efficient
- Substantially reducing cash-based counterfeit currencies
- Decreasing the effect of a shadow economy, undeclared income, and criminal activities such as non-traceable ransomware payment in Bitcoin
- Hacked wallets and data theft
- Malevolent disruption of a country’s banking system by external forces
- Imposition of inequitable rules, regulations and legislation
- Incorrect government agency interventions with no recourse
The benefits of reducing criminal activity and tax evasion are real, but to catch the minority the majority have to give up what have previously been regarded as rights of privacy. However, privacy from government inspection and interference, and an absence of links to fiat currencies (all currently losing purchasing power due to global inflation), remain major reasons why cryptocurrency was invented and appealed to early adopters. The downside risks include external interventions and systemic incompetency. How can cybersecurity cope with it?
The efforts so far of the central banks to recreate a tamer version of Bitcoin are too late. The genie is out of the bottle, they have already lost the early adopters and the more independent-minded people.
They are spending billions of dollars to create “proposed” solutions to problems that Bitcoin already solves, and will promote those solutions to the majority of the public who do not need them. But they cannot accept anything beyond their control.
Decentralised cryptos are also the entry route for purchasing NFTs. Central banks warn “responsible citizens” against unregulated and wildly fluctuating NFT values as much as the cryptocurrencies themselves that are used to buy them. As an example, The Central Bank of Ireland issued a warning in March 2022 on the risks of investing in crypto assets, as part of a European-wide campaign by the European Supervisory Authorities.
Bitcoin, and other blockchain-based cryptocurrencies are uncontrollable open-source code that exists as tens of thousands of copies on servers dispersed throughout the entire world. Perhaps the central banks’ efforts will actually prompt demand for Bitcoin, pushing its value back up and beyond former levels.