The Dark Side of CBDCs: A Path to Surveillance and Control (2024)

FAQs

What is the dark side of CBDC? ›

They paint a picture of inclusivity and altruism, but let's call it what it is: a power play. The looming specter of CBDCs isn't just about digital innovation; it's about surveillance, loss of privacy, and an iron grip on financial transactions.

The privacy implications of a CBDC will depend to a large extent on how it is designed. The use of blockchain technology to authenticate transactions, for instance, creates a permanent record every time the unit of currency is transferred, making it possible to trace where it was spent – and by whom.

A central bank digital currency (CBDC) is a form of digital currency issued by a country's central bank. It is similar to cryptocurrencies, except that its value is fixed by the central bank and is equivalent to the country's fiat currency.

Because a CBDC offers a safe asset to run to in times of crisis, a key financial stability concern about its introduction is that it may increase the vulnerability of institutions and markets that depend on short-term, runnable debt.

Use strong passwords, keep your antivirus software up-to-date, and avoid clicking on suspicious links or downloading unknown software. Also, protect yourself by using two-factor authentication when you login to data-sensitive sites. CBDC is a digital currency, so you'll need to make sure your digital assets are secure.

Will a U.S. CBDC replace cash or paper currency? The Federal Reserve is committed to ensuring the continued safety and availability of cash and is considering a CBDC as a means to expand safe payment options, not to reduce or replace them.

CBDC remuneration. A CBDC can lead to bank disintermediation if its interest rate is high enough, but a non-interest-bearing CBDC, or a CBDC with a rate that is low, might have insignificant effects on bank intermediation.

A UK House of Lords economic affairs committee report concluded that a CBDC poses two main security risks: first, that individual accounts could be compromised through cybersecurity weaknesses; and, second, that a centralised CBDC ledger could be a target for attack from “hostile state and non-state actors”.

CBDC has special aspects that may benefit financial inclusion, such as being a risk-free and widely acceptable form of digital money, availability for offline payments, and potentially lower costs and greater accessibility.

Is the US Going to Digital Dollar? As of June 2024, the US Federal Reserve has not decided to transition to a CBDC or supplement its existing monetary system with one. It is researching the effects a CBDC would have on the dollar, the US, and the global economy.

Why will cash never go away in the US? ›

Security Issues. Some consumers choose to pay for purchases with cash because of security concerns. Every time another big company suffers a breach that compromises payment card information, consumers worry about how that impacts them.

Put simply, a CBDC would most likely be the single largest assault to financial privacy since the creation of the Bank Secrecy Act and the establishment of the third-party doctrine. The threat to freedom that a CBDC could pose is closely related to its threat to privacy.

Further, with so much information in hand, a CBDC would enable the government to restrict financial freedom in countless ways. Although some members of Congress suggest that CBDCs are largely theoretical, that couldn't be further from the truth.

Government surveillance

Since CBDCs are created and managed at the federal level (such as in the United States), governments have the ability to keep an eye on business dealings and financial activity. This degree of control might result in increased state surveillance, violating people's financial privacy.

These countries view CBDCs as a way to maintain their global political and economic power and influence. In short, public demand aside, CBDCs may indeed be inevitable.”

The concern is that financial privacy will be lost with a digital dollar. The government would be able to watch how people spend their money, close their bank accounts, or even just take the money. In other words, the worry is that a digital dollar would be one more way for the government to control us and our money.

Central Banks have limited control over the economy. They can influence it through monetary policy tools like interest rates, but they cannot directly control factors like consumer spending, business investment, technological changes, etc. The effects of monetary policy changes take time to work through the economy.