CBDCs

Global policymakers are still pushing CBDCs despite their failures

From Thailand to the Eastern Caribbean, the CBDC experience has been one of government waste. So why do financial authorities keep pushing them?

Despite the risks and the failures associated with central bank digital currencies (CBDCs), global policymakers are pushing forward to make them a reality. 

In November alone, officials from the International Monetary Fund (IMF), Bretton Woods Committee, and Bank for International Settlements (BIS) issued rallying calls for governments to push forward on CBDCs with courage and determination. But rather than double down on a bad idea and waste further resources in this pursuit, policymakers should let this idea go and focus on more fundamental reforms that would create a freer financial system.

The November CBDC campaign began when IMF managing director Kristalina Georgieva told policymakers, “If anything… we need to pick up speed [with CBDC development].” Bretton Woods Committee chair Bill Dudley likewise called not only for the United States to develop a CBDC, but for the BIS to establish an international standard for CBDCs. And BIS Innovation Hub head Cecilia Skingsley told an audience that CBDCs should not be dismissed as a “solution in search of a problem” because they might be useful one day.

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DeSantis is right — CBDCs will lead to absolute government control

From China to Canada, it’s clear that governments around the world are salivating at the prospect of introducing currencies they can manipulate hassle-free.

Arguing over the prudence and implications of issuing a central bank digital currency (CBDC) in the United States has seemingly become one of Washington’s favorite icebreakers. As Congress considers the question, it is critical that Americans clearly understand and soberly consider the immense power a CBDC could grant governments as well as the unacceptable risk of that power’s potential abuse. 

In March, Florida Governor Ron DeSantis introduced a proposal to ban CBDC use in his state, arguing that total monetary control by the federal government is dangerous for American society. Shortly after, the White House released its economic report in which it argued in favor of a CBDC as a mechanism for advancing “human rights, democratic values, and privacy.” The fact that many countries and monetary systems have begun to develop and issue their own CBDCs colors the domestic debate as well.

While no technology is inherently evil, the consequences of various technologies’ potential misuse varies considerably. So too a CBDC system is, at heart, merely a tool — not inherently good or bad on its own. But the downside risk of a CBDC’s misuse is so immense that the concept should be rejected. The idea of completely centralizing “absolute control” over people’s ability to engage in commerce via a CBDC should be anathema to free societies — even if the prospect of that power’s misuse seems outlandish today.

But in the United States, at least, it’s not outlandish. It would be naive to ignore America’s long journey of developing an increasingly pervasive financial surveillance system, as well as the possibility of a CBDC being used for the same purpose. America’s policymakers have a chance now to arrest that trajectory and build a better system that more consistently respects citizens’ right to privacy.

Related: White House report takes aim at Bybit — and forgot about Deribit

Proponents of a CBDC argue that it could advance financial inclusion and improve the efficiency of payments. They’re right, but the key issues here are what potential cost this might come with and whether or not there are alternatives available to accomplish the same objectives with fewer risks. Luckily, in this case, alternatives are numerous and extraordinarily varied: Ideas range from decentralized finance (DeFi) protocols to postal banks.

Critically, these alternatives can accomplish many of the core benefits that proponents of a CBDC point to while avoiding the downside risk of creating a system that, if abused, could undermine individual rights in a way few technologies ever could. A CBDC could not only grant a government total, unchecked surveillance into someone’s financial life — down to every cent spent — but also allow a government to, for example, prohibit an individual from engaging in commerce altogether or literally delete the assets of some disfavored individual or group of individuals. No government should have that power accessible via a few keyboard strokes.

Examples leveraging the (relative to a CBDC-based system) decentralized financial system we rely on today also warrant caution. In 2022, Chinese citizens who shared pictures of a banner condemning Chinese Communist Party General Secretary Xi Jinping lost access to their WeChat accounts. WeChat is a “do-everything app” that is commonly used as a method of payment, which means suspended users were unable to accomplish basic tasks such as calling taxis or purchasing groceries.

Related: The world could be facing a dark future thanks to CBDCs

Similarly, the Canadian government last year used emergency powers to order banks to freeze the accounts of people participating in protests the government deemed unlawful. Regardless of whether one believes that invoking such potent powers was justified in either particular case, these instances must give pause to anyone who is — or expects to ever potentially be — on the “wrong side” of a government. And, importantly, these actions were taken using a system that is unwieldy compared to the brutal efficiency of a CBDC.

Americans across the political and ideological spectrum should find common cause in rejecting the issuance of a CBDC, whether one is concerned about a CBDC’s power to grant the government “absolute control” over extremely personal life choices or because one is concerned about the federal government targeting disfavored individuals or groups writ large. A completely centralized monetary system almost begs to be abused. The mere possibility of such a powerful tool being used for unlawful, immoral or restrictive reasons on a societal scale means that the idea of issuing one warrants extreme suspicion, if not outright rejection.

Miller Whitehouse-Levine is the CEO of the DeFi Education Fund With oversight from the DEF’s grants committee, Miller has overall strategic and operational responsibility for the execution of the organization’s mission and goals. Prior to joining the fund, Miller led the Blockchain Association’s policy operation and worked at Goldstein Policy Solutions on a range of public policy issues, including crypto. Miller holds a B.S. in international politics and a minor in Mandarin Chinese from Georgetown’s School of Foreign Service.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

CBDCs will lead to absolute government control

From China to Canada, it’s clear that governments around the world are salivating at the prospect of introducing currencies they can manipulate hassle-free.

Arguing over the prudence and implications of issuing a central bank digital currency (CBDC) in the United States has seemingly become one of Washington’s favorite icebreakers. As Congress considers the question, it is critical that Americans clearly understand and soberly consider the immense power a CBDC could grant governments as well as the unacceptable risk of that power’s potential abuse. 

In March, Florida Governor Ron DeSantis introduced a proposal to ban CBDC use in his state, arguing that total monetary control by the federal government is dangerous for American society. Shortly after, the White House released its economic report in which it argued in favor of a CBDC as a mechanism for advancing “human rights, democratic values, and privacy.” The fact that many countries and monetary systems have begun to develop and issue their own CBDCs colors the domestic debate as well.

While no technology is inherently evil, the consequences of various technologies’ potential misuse varies considerably. So too a CBDC system is, at heart, merely a tool — not inherently good or bad on its own. But the downside risk of a CBDC’s misuse is so immense that the concept should be rejected. The idea of completely centralizing “absolute control” over people’s ability to engage in commerce via a CBDC should be anathema to free societies — even if the prospect of that power’s misuse seems outlandish today.

But in the United States, at least, it’s not outlandish. It would be naive to ignore America’s long journey of developing an increasingly pervasive financial surveillance system, as well as the possibility of a CBDC being used for the same purpose. America’s policymakers have a chance now to arrest that trajectory and build a better system that more consistently respects citizens’ right to privacy.

Related: White House report takes aim at Bybit — and forgot about Deribit

Proponents of a CBDC argue that it could advance financial inclusion and improve the efficiency of payments. They’re right, but the key issues here are what potential cost this might come with and whether or not there are alternatives available to accomplish the same objectives with fewer risks. Luckily, in this case, alternatives are numerous and extraordinarily varied: Ideas range from decentralized finance (DeFi) protocols to postal banks.

Critically, these alternatives can accomplish many of the core benefits that proponents of a CBDC point to while avoiding the downside risk of creating a system that, if abused, could undermine individual rights in a way few technologies ever could. A CBDC could not only grant a government total, unchecked surveillance into someone’s financial life — down to every cent spent — but also allow a government to, for example, prohibit an individual from engaging in commerce altogether or literally delete the assets of some disfavored individual or group of individuals. No government should have that power accessible via a few keyboard strokes.

Examples leveraging the (relative to a CBDC-based system) decentralized financial system we rely on today also warrant caution. In 2022, Chinese citizens who shared pictures of a banner condemning Chinese Communist Party General Secretary Xi Jinping lost access to their WeChat accounts. WeChat is a “do-everything app” that is commonly used as a method of payment, which means suspended users were unable to accomplish basic tasks such as calling taxis or purchasing groceries.

Related: The world could be facing a dark future thanks to CBDCs

Similarly, the Canadian government last year used emergency powers to order banks to freeze the accounts of people participating in protests the government deemed unlawful. Regardless of whether one believes that invoking such potent powers was justified in either particular case, these instances must give pause to anyone who is — or expects to ever potentially be — on the “wrong side” of a government. And, importantly, these actions were taken using a system that is unwieldy compared to the brutal efficiency of a CBDC.

Americans across the political and ideological spectrum should find common cause in rejecting the issuance of a CBDC, whether one is concerned about a CBDC’s power to grant the government “absolute control” over extremely personal life choices or because one is concerned about the federal government targeting disfavored individuals or groups writ large. A completely centralized monetary system almost begs to be abused. The mere possibility of such a powerful tool being used for unlawful, immoral or restrictive reasons on a societal scale means that the idea of issuing one warrants extreme suspicion, if not outright rejection.

Miller Whitehouse-Levine is the CEO of the DeFi Education Fund With oversight from the DEF’s grants committee, Miller has overall strategic and operational responsibility for the execution of the organization’s mission and goals. Prior to joining the fund, Miller led the Blockchain Association’s policy operation and worked at Goldstein Policy Solutions on a range of public policy issues, including crypto. Miller holds a B.S. in international politics and a minor in Mandarin Chinese from Georgetown’s School of Foreign Service.

This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Federal Reserve confirms July launch for FedNow instant payment service

The FedNow service aims to reduce the gap in payment time between United States financial institutions.

The United States Federal Reserve has confirmed a July launch date for its long-awaited instant payments system, seen by some as an alternative to central bank digital currencies and stablecoins.

The instant payment network will settle payments in seconds and can support transactions between consumers, merchants and banks. It does not rely on blockchain technology.

It’s a significant step for the government, as it is controlled by the Federal Reserve. Clearing House’s RTP network, which also offers real-time payments, is operated by a consortium of large banks. 

According to a March 15 announcement, the U.S. Fed said the debut of FedNow is set for July, with the U.S. Treasury and a “diverse mix of financial institutions of all sizes” ready to use the network from launch.

The Fed said it will “begin the formal certification of participants” during the first week of April in preparation for the launch.

“Early adopters will complete a customer testing and certification program, informed by feedback from the FedNow Pilot Program, to prepare for sending live transactions through the system,” the announcement reads.

FedNow was announced in 2019 and will provide round-the-clock, real-time gross settlement by funneling commercial bank money from a sender through a Fed credit account to its recipient. It also has built in features such as fraud risk management.

Following the official launch, the Federal Reserve outlined that it will push to onboard as many as financial institutions as possible in order to increase the availability of instant payments.

“The launch reflects an important milestone in the journey to help financial institutions serve customer needs for instant payments to better support nearly every aspect of our economy,” Tom Barkin, president of the Federal Reserve Bank of Richmond and FedNow Program executive sponsor, said in the announcement.

Some see the FedNow service as tackling a problem that both stablecoins and CBDCs also seek to solve.

The FedNow program, however, doesn’t use blockchain tech, while the Federal Reserve is known to have a cautious and skeptical view on stablecoins. 

Tweet from Meltem Demirors on FedNow. Source: Twitter

One of the major banking payment rails servicing U.S. crypto companies in the Silvergate Exchange Network (SEN) was shut down earlier this month following Silvergate’s collapse.

As it stands, SEN competitor SigNet from Signature Bank is still operational despite the bank’s forced closure on March 13. However, its fate is up in the air, while a number of companies have reportedly fled from the network following Signature’s troubles.

FedNow could also stand in place of a central-bank-issued digital currency.

Federal Reserve Vice Chair Lael Brainard emphasized during a House of Representatives Committee on Financial Services hearing in May that a CBDC would take far longer to get off the ground than FedNow due to regulatory hurdles.

“[If] Congress were to decide… to issue a central bank digital currency, it could take five years to put in place the requisite security features, the design features,” she said.

She added that FedNow will serve many of the same functions as a CBDC anyhow.

Related: Tassat blockchain to join FedNow service with B2B on-ramp as pilot prepares for launch

Fed chair Jerome Powell also spoke before the House Financial Services Committee on March 9 and suggested that a potential U.S. CBDC is still quite some time away.

“We’re not at the stage of making any real decisions,” he said, adding that “what we’re doing is experimenting in kind of early stage experimentation. How would this work? Does it work? What’s the best technology? What’s the most efficient?”

Commenting on FedNow, however, he stated that “we’ll have real-time payments in this country very, very soon.”

Crypto could spark the next financial crisis, says India’s RBI head

Reserve Bank of India Governor Shaktikanta Das warned that if crypto becomes regulated and is allowed to grow, it could cause the next financial meltdown.

The governor of the Reserve Bank of India (RBI), Shaktikanta Das, did not mince his words when discussing the crypto sector at a recent conference, asserting that “private” crypto will be behind the next financial crisis.

Speaking at the Business Standard BFSI Insight Summit on Dec. 21, Das argued that private cryptocurrencies — those that are not issued by banks or governments — are backed by nothing and are purely tools for speculation.

“They have no underlying value. They have huge inherent risks for our macroeconomic and financial stability. I am yet to hear any credible argument about what public good or what public purpose it serves,” he said.

Shaktikanta Das speaking at the summit. Source: Kamlesh Pednekar

Adding to those sentiments, Das went on to suggest that a full-scale crypto ban in India would be the best approach moving forward:

“It [private cryptocurrency trade] is a hundred percent speculative activity, and I would still hold the view that it should be prohibited … because, if it is allowed to grow, if you try to regulate it and allow it to grow, please mark my words, the next financial crisis will come from private cryptocurrencies.”

Highlighting examples of such risk, the RBI head pointed to the recent FTX implosion led by the freshly extradited Sam Bankman Fried.

“I don’t think we need to say anything more about our stand after the developments over the last one year, including the latest episode around FTX,” he said.

Such comments mark another instance in which a key figure in politics or finance has blamed the crypto sector for FTX’s collapse, with many U.S. senators in particular taking the chance to slam digital assets over the past few weeks.

Das, of course, spoke in much more favorable terms of central bank digital currencies, emphasizing that the RBI is actively pushing to get its digital rupee off the ground.

“You will see in days to come more and more central banks will embrace digital currencies and India has been in the forefront of the digital revolution in the current century,” he said.

The RBI has historically had a frosty view on crypto and questioned its value on several occasions. Das’ latest comments show that the sentiment is only getting worse, as the bank had previously ranked the sector at the bottom of its list of systemic risks as recently as June.

SWIFT says it has reached a ‘breakthrough’ in recent CBDC experiments

“For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway,” said chief information officer Tom Zschach.

On Wednesday, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, announced that it has successfully moved central bank digital currencies (CBDCs) and tokenized assets on existing financial infrastructure through two separate experiments. According to SWIFT, the results demonstrated that “CBDCs can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries and territories around the world.”

SWIFT is a Belgian messaging system that connects over 11,500 financial institutions worldwide and plays a paramount role in facilitating international transactions. Globally, nine out of 10 central banks are actively exploring digital currencies. Via its collaboration with Capgemini, SWIFT managed to settle transactions using CBDCs based on different distributed ledger technologies, as well as using a fiat-to-CBDC payment network.

Fourteen central and commercial banks, including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo, are now collaborating in a testing environment to accelerate the path to full-scale CBDC deployment.

In the second experiment, SWIFT demonstrated that its infrastructure could integrate tokenization platforms with different types of cash payments. Working in collaboration with Citi, Clearstream, Northern Trust and SETL, SWIFT explored 70 scenarios simulating the market issuance and secondary market transfers of tokenized bonds, equities and cash. The World Economic Forum estimates the tokenization market could reach $24 trillion by 2027. Regarding the developments, Tom Zschach, chief innovation fficer at SWIFT, said:

“Digital currencies and tokens have huge potential to shape how we will pay and invest in the future. But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a significant step towards unlocking the potential of the digital future.”

SWIFT says it has reached a ‘breakthrough’ in recent CBDC experiments

“For CBDCs, our solution will enable central banks to connect their own networks simply and directly to all the other payments systems in the world through a single gateway,” said chief information officer Tom Zschach.

On Oct. 5, the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, announced that it had successfully moved central bank digital currencies and tokenized assets on existing financial infrastructure through two separate experiments. According to SWIFT, the results demonstrated that “CBDCs can be rapidly deployed at scale to facilitate trade and investment between more than 200 countries and territories around the world.”

SWIFT is a Belgian messaging system that connects over 11,500 financial institutions worldwide and plays a paramount role in facilitating international transactions. Globally, nine out of 10 central banks are actively exploring digital currencies. Via its collaboration with Capgemini, SWIFT managed to settle transactions using CBDCs based on different distributed ledger technologies, as well as using a fiat-to-CBDC payment network.

Fourteen central and commercial banks — including Banque de France, the Deutsche Bundesbank, HSBC, Intesa Sanpaolo, NatWest, SMBC, Standard Chartered, UBS and Wells Fargo — are now collaborating in a testing environment to accelerate the path to full-scale CBDC deployment.

In the second experiment, SWIFT demonstrated that its infrastructure could integrate tokenization platforms with different types of cash payments. Working in collaboration with Citi, Clearstream, Northern Trust and SETL, SWIFT explored 70 scenarios simulating the market issuance and secondary market transfers of tokenized bonds, equities and cash. The World Economic Forum estimates the tokenization market could reach $24 trillion by 2027. Regarding the developments, Tom Zschach, chief innovation officer at SWIFT, said:

“Digital currencies and tokens have huge potential to shape how we will pay and invest in the future. But that potential can only be unleashed if the different approaches that are being explored have the ability to connect and work together. We see inclusivity and interoperability as central pillars of the financial ecosystem, and our innovation is a significant step towards unlocking the potential of the digital future.”

Bitcoin think tank: Reject CBDCs and look to BTC and stablecoins instead

The paper’s authors say Central Bank Digital Currencies are problematic for the future of individual and economic freedom, but crypto is a viable alternative.

United States think tank Bitcoin Policy Institute is calling for the United States to reject central bank digital currencies (CBDCs) and look to Bitcoin (BTC) and stablecoins as alternatives. 

In a white paper shared on Tuesday, authors including Texas Bitcoin Foundation executive director Natalie Smolenski and former Kraken growth lead Dan Held argue that CBDCs would strip the public of financial control, privacy and freedom.

Smolenski and Held argued that CBDCs would essentially “provide governments with direct access to every transaction […] conducted by any individual anywhere in the world,” adding that this could then become available for “global perusal,” as government infrastructure is a “target of constant and escalating cyberattacks.”

The pair also argued that CBDCs would enable governments to “prohibit, require, disincentivize, incentivize, or reverse transactions, making them tools of financial censorship and control:”

“As a direct liability of central banks, CBDCs become a new vanguard for the imposition of monetary policy directly on consumers: such policies include, but are not limited to, negative interest rates, penalties for saving, tax increases, and currency confiscation.”

Smolenski and Held suggest this greater focus on surveillance will mimic “the Chinese government’s surveillance efforts” in bringing state visibility to all financial transactions not already observed through the digital banking system.

“As the world goes the way of China in the 21st century, the United States should stand for something different,” they argued.

The authors said many of the functions CBDCs provide can already be solved with a combination of Bitcoin, privately-issued stablecoins, and even the U.S. dollar, noting:

“For most people, a combination of physical cash, bitcoin, digital dollars and well collateralized stablecoins will cover virtually all monetary use cases.”

Smolenski argued that Bitcoin and private stablecoins will allow instant, low-cost digital transactions both domestically and across borders, while digital dollars and stablecoins will continue to be subject to Anti-Money Laundering and Know Your Customer compliance by “the platforms that facilitate transacting with them,” adding: 

“The creation of CBDCs is, quite simply, unnecessary.”

The white paper also argued that governments are often out of depth with new technology, pointing to an incident earlier this year when the Eastern Caribbean Central Bank’s CBDC, DCash, went offline.

“In effect, where governments lead the implementation of CBDCs, serious stability and reliability issues will arise,” they wrote. 

CBDCs are already well on their way to development in some countries such as China, but earlier this month, President Joe Biden signaled that the U.S. is considering following suit after directing the Office of Science and Technology Policy (OSTP) to submit a report analyzing 18 CBDC systems.

Previous discussions around CBDCs in the U.S. have been marked with division and confusion, which is one of the author’s key issues with CBDCs — a lack of expertise by governments, along with potential privacy breaches and control.

To combat what they see as concerns with CBDCs, Smolenski and Held propose cryptographic stablecoins pegged to fiat currencies and backed 1:1 with hard collateral that can be issued by private banks worldwide.

Related: It’s now or never — The US has to prepare itself for digital currency

“This would provide all of the purported benefits of CBDCs for end users while precluding the levels of surveillance and control that CBDCs offer the state,” they said:

“The United States should stand for something different: it should stand for freedom. For this reason, the United States should reject central bank digital currencies.”

The Bitcoin Policy Institute describes itself as a nonpartisan, nonprofit organization researching the policy and societal implications of Bitcoin and emerging monetary networks.

‘Programmable money should terrify you’ — Layah Heilpern

The comments come as Layah Heilpern believes CBDCs will give rise to government enforced censorship which will prevent residents from transacting how they wish.

Government-controlled “programmable money should terrify you,” says social media influencer and TV Host Layah Heilpern, who sees central bank digital currencies (CBDCs) as a way for banks and governments to reign control over their people.

In an interview on Friday with British news outlet GB News, Heilpern, who also released Undressing Bitcoin: A Revealing Guide To The World’s Most Revolutionary Asset in September 2021, said the widespread rollout of a CBDC from nation states is on its way, and that it could lead to the financial censorship of citizens in the future.

Heilpern stated that as CBDCs are essentially programmable cryptocurrencies that run on blockchains, they could potentially be “programmed against you” at the whims of the centralized authority behind them:

“If for whatever reason you say the wrong thing, because you know we’re seeing censorship increasing, then that money can essentially be programmed to be used against you.”

Heilpern added that while a lot of people might find this concept to be “quite bizarre,” it’s very realistic given the restrictions that were enforced on unvaccinated people by governments:

“With a CBDC, all [the government] have to do really is program that money so you can’t spend it on certain things.”

Heilpern also said that while CBDCs will be marketed as “better for the environment,” and serve as a “solution to rising inflation rates,” that’s simply “a lie.”

Following up on the interview via a Twitter post,  Heilpern didn’t mince her words as she stated that the “Central Bank Digital Currencies will be marketed as better for the environment and the solution to inflation. It’s a lie. Money is the energy that fuels your life; so programmable money should terrify you.”

Notably, however, such concerns around financial censorship have been especially prevalent with crypto in general of late, with the recent Tornado Cash debacle, which saw the United States Treasury sanction Ether (ETH) and USD Coin (USDC) addresses associated with the Ethereum-based privacy tool.

According to an Oct. 2021 report, 110 countries are “at some stage” of CBDC development, with the Bahamas’ Sand Dollar CBDC being the first of its kind to be rolled out in Oct. 2020.

But, perhaps the most controversial CBDC is China’s yuan (e-CNY), issued by the People’s Bank of China, which had its pilot version launched in April 2020, with some suggesting the ban on crypto was conducted to make way for the digital Yuan.

The Bank of Russia also began CBDC testing and is aiming to have one launched before their presidential election in 2024.

Despite much criticism, CBDCs may offer developing nations more macroeconomic stability in comparison to decentralized currencies, according to IMF Managing Director Kristalina Georgieva, as CBDC’s would have the “backing of the state” and would of course be regulatory compliant.