Modern-day financial tools that help us live our daily lives are about to change. Even better, if I say they are soon going to evolve thanks to the Internet & Blockchain revolution. Central Banks & Governments are about to roll out their own version of Digital Currency.
This means, no more paper money is required. All you want is a token that’s backed by the national central bank. Assuming none of us has any idea about Bitcoin or Ethereum. Many socialists, I believe will assume CBDC’s to be a revolutionary technology, the first of its kind to be truly digital.
What many won’t realize is the level of control the banks have will move a step up after the rollout of a CBDC.
What is a CBDC?
We all have heard that China is pilot testing the digital Yuan, the Indian Central Bank is working towards the launch of its own Digital Rupee, European Central Bank working on the same & even the US. Every other nation is in a race towards building a CBDC for the nation.
On one hand, economically large nations are making their own token and on the other hand, smaller countries are adopting Bitcoin. Now let’s discuss what is a CBDC.
Blockchains make the transactions more seamless and transparent for everyone. Say that I make a transaction worth 0.01 BTC on the Bitcoin Network. Using the transaction hash, anyone could trace down the sender, receiver, transaction charges & timestamp for the same. Same stands for every other Crypto asset on a public blockchain like Ethereum or Binance Chain.
Conventional banks don’t like things getting out of their hand, neither Governments like that. Money is the core driver for an economy. It acts as an incentive for people who then can be made to act in a certain way. Not breaking it down further, let’s assume CBDC is just a step forward taken by the Central Banks.
Pros of a CBDC
- We all remember that last year, US issued a $1.9 trillion dollar economic stimulus package. Imagine the same being done using a CBDC. The entire process could be done within minutes. CBDC’s are not only better than Fiat but also more efficient in terms of speed, security, transparency & longevity.
Now, I can’t comment whether or not the US Government launches their CBDC on a public network or a private one. If the CBDC works on a private blockchain, then transparency would be very little. However, if it’s on a public network, things will be very similar to the Bitcoin Network or the Ethereum Chain.
- Apart from that, CBDC’s can help to power faster cross-border payments. Today, if someone in US sends money to India, the process could take as long as 3-5 working days. Fees are separate which might add up significantly if someone makes frequent transfers.
- CBDC’s could change that drastically by making the transaction happen almost instantly. Just like occasionally I get paid with BUSD or Ether sometimes, nobody will need to worry where the sender & the recipient is sitting around the world.
- Government authorities will get even more control on money. Unlike Cold Hard Cash, CBDC’s will be trackable by Federal Agents. This could in-turn help the Tax Authorities, Crime Investigators & the Government. If every single transaction could be traced back to its origin, the terror funding could go down drastically among nations.
Cons of CBDC
“A Money that is easy to produce is no money at all, and easy money does not make a society richer; on the contrary, it makes it poorer by placing all its hard-earned wealth for sale in exchange for something easy to produce.”Saifedean Ammous
An outcome that is possible if printing money became as easy as to click a button beautifully summarised by the author of The Bitcoin Standard.
My Take on the downsides of CBDC
- We all have a smartphone and its personalised for us based on our day to day usage. All our applications like Facebook, Instagram, Twitter are personalised. Imagine what if the same could be applied for money.
- Yes that’s exactly why I’m not a fan of CBDC. Governments could technically say to people making more than the average income of a nation that the rate of inflation for you could be 10% and for others it could be 2%. Now suddenly, you’ll either have to spend a lot or invest into the markets to beat the inflation rate for your wealth decided by the Government.
- CBDC’s also I feel violate privacy. If a nation has a centralised money that’s 100% visible to the Government, they could potentially look upon your day to day life, spending habits, income sources, subsidies, tax benefits, etc. Fiat on the other hand isn’t traceable once it’s converted to Cash. Imagine your government looking upon your bank statement and knowing about your last Netflix Purchase.
- If printing money became easier, that could even mean more and more borrowing by the Government. Sooner or later, people might even think of money as something not worth their effort because for some selected group of people, it’s as easy to earn by just punching a few numbers.
- Banks could even become obsolete. In reality all that’s done by the banks is lending & borrowing. If some smart contract could handle the operation, it would be a disaster for all bank employees & banks who will become irrelevant for most people.
- Bitcoin could reach a million dollars in valuation and people might look for more Bitcoin than Fiat.
What can we do?
If given a choice to have either save Bitcoin or Government money, everyone should always keep looking for the former at least from the day you came to know about what’s going to happen over the next decade.
Experts even believe that some people will either become rich just by being an early adopter & some will become poor just because they didn’t pick the right one during early days.
But just like all other volatile assets, one shouldn’t go all into Bitcoin at once. You still need to pay your Rent, EMI’s, Education Fees, etc in fiat as of today. So I think making a balance is the way to go.