Many governments around the world are exploring the use of digital currencies to replace their current currencies in the near future. The speed, efficiency and transparency that cryptocurrencies have shown that run on the blockchain have raised eyebrows at the upper levels of the federal banking system. Blockchain has proved to be the best ledger mankind has invented to date. Its obvious superiority over the current outdated dinosaur model the current banking system uses, implies it’s only a matter of time before it gets implemented in the traditional Federal banking system.
Just as with any new technology, it can go both ways, both beneficial and detrimental. Similar to when we learnt to split the atom, we can create enormous amounts of relatively clean energy or can eradicate entire cities in a second. Central bank digital currencies will enable faster, smoother transfers of wealth around the economy and world and will eliminate any wait times we were used to in the past. An example of this would be when you send money from your bank internationally, it takes a couple days to complete and the fees involved are high. Using CBDC’s these wait times will be eliminated.
The problem that arises with CBDC’s is that it gives the owner government tremendous control of personal finances. The beauty of the blockchain is in how transparent the transactions are, anyone on the blockchain can see all transactions in real time and in the past. Governments may use this information to track a person’s spending habits, create a profile or even restrict them from purchasing certain items. This would in theory make it easier to control, for example the purchases of alcohol and tobacco by minors but how far would governments take it.
Another problem would be in the event of a macro financial situation, they could automatically impose negative interest rates on your digital account and shrink your balance, or they could do ‘helicopter drops’ such as were used in 2020 for Covid relief in the USA and many other countries.
I feel it’s the natural path forward for Central banks to use a digital currency, but we must be vigilant that our personal finances and freedom are not overstepped.
