Crypto was once dismissed as a fad, and It was even labeled as magic internet money by skeptics. The government and central banks started to notice when users started to pump billions and even trillions of US dollars into the digital assets space. For the first time, a newcomer is challenging the status quo and threatening to disrupt the way financial transactions are done worldwide.
The central banks are fighting back with everything at their disposal to make sure that crypto will not pose any danger to the current financial system. The government has even created a roadmap to mitigate alleged risks from crypto. The introduction of Central Bank Digital Currencies (CBDC) is now being fast-tracked since it will be the direct competitor of crypto. But is it better or just a ploy to solidify control over money?
CBDC and Crypto are not the Same
Central Bank Digital Currencies or CBDC is a digital form of central bank money or fiat that can be used for financial transactions. CBDCs differ from crypto, like Bitcoin, as they are backed by a central authority and have legal tender status. Aside from its digital nature, CBDC is the exact opposite of crypto.
CBDC is fiat in digital form. It can use blockchain as its core, but the crypto community knows that any similarity to crypto stops there. Central banks can already control the monetary policies of countries and they would have more power with CBDC. It is not called programmable money for nothing. In a dystopian future, a central authority can control how much people can save, send or spend.
The image above came from cbdctracker.org and it let us visualize the progress of CBDC roll outs across the globe. Several nations are now researching and trying to finalized a proof concept. A few are also rolling out pilots to test out their own digital currencies.
China’s CBDC
Let us examine the Chinese e-CNY or digital Yuan. This digital currency was launched in 2020 as a tool to improve the efficiency of payment systems and to prevent illicit activities. According to the Asian Development Bank report, it will have a big implication for financial oversight and crime prevention.
“The most important effect that the e-CNY will have for commerce in the PRC relates tothe PBC’s oversight and control of financial transactions. If the e-CNY were to replacecash in the PRC, then the PBC would have the capability to monitor, trace, block, andrevert transactions that were previously invisible. “
(Fullerton & Morgan, 2022, p. 16)
This type of control seems harmless and beneficial for the country, but it also raises questions regarding the privacy of individuals. With CBDCs, authorities can easily spy on private individuals and confiscate money under the guise of crime prevention.
In October 2020, 50,000 individuals from Shenzhen were given digital yuan as part of the pilot testing. But this money had one caveat, it had an expiry date. It was unclear if this will be a permanent feature or just part of testing, but this tells us that CBDCs are programmable. A central authority can simply put in additional features to exercise control on how, when, and where money can be spent.
The Nigerian CBDC – eNaira
Nigeria’s CBDC, the eNaira, was created with the intention of promoting greater financial inclusion and economic growth. In line with the rollout of its digital currency, the country initiated crypto crackdowns and invalidated some banknotes. This is in an apparent effort to promote the eNaira.
Despite the effort, only a small percentage of the country adopted the new digital currency. Instead, Nigerians opted to flock to cryptocurrencies due to their cross-border functionality and speculative opportunities. This apparent failure is a lesson on how crypto’s decentralized nature is better than CBDCs.
Is the U.S. Stifling Crypto for CBDC?
The U.S. is still in the initial phases of creating its own CBDC, but it is apparent that those in power are doing everything they can to stifle cryptocurrency adoption and their recent actions are downright anti-crypto. This is the sentiment of one of Signature Bank’s board members, Barney Frank.
“I THINK PART OF WHAT HAPPENED WAS THAT REGULATORS WANTED TO SEND A VERY STRONG ANTI-CRYPTO MESSAGE,” AS SAID DURING A CNBC INTERVIEW BY BARNEY FRANK, A BOARD MEMBER OF SIGNATURE BANK AND A FORMER CONGRESSMAN.”
CNBC INTERVIEW
Sometime in 2023, The Federal Reserve will release the FedNow Service, a new instant payment service that allows financial institutions across the U.S. to offer safe and efficient real-time payment 24/7/365. If this sounds familiar, then it is because we already have this type of technology in the form of cryptocurrencies. The big difference is that crypto, in theory, is built to be free from a central authority.
To the casual observer, it would seem that the crypto crackdown has something to do with the FedNow launch. Eliminating competition is a way to dominate any industry. Whether this is true or not is something only insiders can confirm.
Stablecoins vs CBDCs
Stablecoins which are direct competitors to CBDCs are being questioned for its alleged risk. But major stablecoins are backed one is to one. They are backed by fiat and securities. Saying that stablecoins are risky is like saying that fiat and debt issued by the government can’t be trusted.
The recent collapse of traditional banks highlights that banks are not immune to risk. In fact, the only reason the stablecoin USDC lost its 1:1 peg was because part of its backing was kept with a bank. This 1:1 backing is the reason why stablecoins can be exchange to fiat at any given time. This is the exact opposite of banks’ fractional reserve, a practice wherein only a fraction of deposits made by customer is kept by the bank.
It is All About Control
Money makes the world go round and those who control the money controls the world. This is a sad truth that has been exploited by authority figures since the dawn of civilization. The form of money changes, but kings and leaders know that they need it to retain authority. It is just a simple transaction, people obey and follow in exchange for a chance to earn something of value.
There is nothing wrong with regulation coming from a duly appointed authority. This prevents chaos and illicit transactions. The crypto space itself was rocked by the collapse of Luna and FTX, apparently due to questionable business practices. The investigation and prosecution of those involved will prevent similar occurrences in the future.
The problem is when regulators are going beyond what is right in the name of retaining control. Instead of going after those who are trying to comply with regulations, authorities should focus more on prosecuting those who have rug-pulled investors. Instead of carpet bombing the whole crypto space, it might be better if authorities sit down with stakeholders and find a way that benefits both sides. Instead of enforcing control measures like CBDCs, let the people decide for themselves which will be better for their own security, privacy, and freedom.
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Featured Image from Pixabay
