Central Bank Digital Currencies and the remaking of the World Order
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“If the local currency suffers from instability and provides a poor unit of account, issuing CBDC is unlikely to change that. More broadly, the case for CBDC issuance is likely to depend on country circumstances.” IMF
The IMF has spoken about their vision of how a digital currency dominant future can look like and outlined the risks of governments that do not adapt to this new age. The NGO also mentioned that while the US and China are fiercely battling digital currency dominance, a neutral option can arise from the cryptocurrency space that could threaten the world financial order.
Because of this, they suggest that a synthetic private-public partnership could be the best way forward for a central bank digital currency. This would permit governments to engage in their development proactively and, with this, mitigate the risk that purely private money solutions like Facebook’s Libra present.
Tommaso Mancini-Griffoli, a representative from the IMF, believes that the idea of creating a CBDC solely backed by a central bank’s reserve and entirely under their control is outdated. He argued that the concept of a synthetic public-private partnership CBDC, on the other hand, is gaining popularity among the digital currency world and will empower private sectors such as blockchain-backed stablecoins to continue to innovate.
He suggests that the private sector should concentrate on innovation, interface design, and client management. And that the public sector should remain focused on regulation and underpinning trust. This would encourage innovation to continue but within a regulated framework for financial stability.
CBDCs are not crypto
“Truth is a cultural construct” Meltem Deminors
The core principles behind a CBDC run counter to the philosophy of crypto. Bitcoin itself was created as a means to escape monolithic central banks and their debasing monetary policy, and in particular, was launched against the Federal Reserve in reaction to the 2008 global financial crisis.
As mentioned throughout the series, cryptocurrencies are a way to escape the central banks and hedge against the loss of purchasing power in cash. CBDCs have been created desperately to maintain the oligopoly of the world’s banking system.
The first critical difference between Crypto and CBDC’s is that one is decentralized(Crypto) and the other(CBDCs) overly centralized. Cryptocurrencies are supported by a plethora of nodes that are incentivized through block rewards to maintain the network. A CBDC is supported by one central network, driven to serve only the sovereign state’s public policy or autocrat that issues them.
Having central banks in control means more centralized decision-making, one of the main culprits that have unleashed a series of economic crises worldwide. As highlighted throughout history, the complete centralization of an economy stagnates innovation, and a digital version of a fiat currency can politicize economic policymaking.
An example of this can be mentioned; during the current COVID 19 crisis, economic actors focused on one aspect of the economy while ignoring others. This is an example of an extreme reaction to an extreme situation, but in a nutshell portrays what has happened throughout history, where policymakers on average favor a set of policies over others, the same strategy that on average fares badly to the average citizen. Central banks are likely to focus on one issue while ignoring another. For example, they might focus on creating employment while allowing the debt to pile up without adequately dealing with inflation.
The second important difference between CBDCs and crypto is the idea of financial autonomy and privacy. Central banks are less likely to respect the boundaries of privacy and data protection. Central banks are embedded in regulatory bodies, while cryptocurrencies remain primarily independent and peer to peer(P2P) based.
Cryptocurrencies in a P2P setting allow the user to decide how much data they choose to share. On the other hand, if Edward Snowden’s whistleblower testimony on NSA surveillance has shown us anything, central banks are highly likely to provide large chunks of data to government agencies.
Privacy and autonomy are crucial to western values that favor the individual over autocrats. Law-abiding citizens have the right to privacy and transactional freedom, money is a public good, and as such should be neutral, cryptocurrencies provide this in spades.
The third and final important difference between crypto and CBDCs is security. Cryptocurrencies so far have weathered the security storm while central banks have not. This is an important issue considering the current state of cyber warfare and the direction that the world is shifting to.
Conclusion
The rise of CBDCs is a testament to the success of the crypto space, as they were created fundamentally as opposition to crypto. CBDCs will attempt to negate crypto, and they are the antithesis of the crypto asset space ethos, that since its inception, has pushed towards a vision of a financial system that empowers individuals, brings transparency, and reestablishes trust to finance.
As mentioned in our first essay, the emergence of the crypto asset space is a referendum on central banks’ authority. In a time where technology and science are driving humanity to a centralized autocratic future, as envisioned by the cipher punks, the crypto asset space might be the final refuge for privacy and property rights.
The next essay will deliver very interesting views about the future of crypto, Bitcoin and their consequences in the space (and out there). Stay tuned for more information and follow us on social media.
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