The Bitcoin Policy Institute’s report on CBDC makes a strong case for why the US should reject a centrally issued version of the dollar. Bitcoinist has already covered it. This time, we will focus on the reasons why The Bitcoin Policy Institute believes that CBDCs are meaningless and impractical for capitalist societies. The main argument is that a CBDC would make banks obsolete, and banks won’t allow it. So the question is, how much influence do banks have on state politics?
Note that this time the Bitcoin Policy Institute’s case is even stronger. And we won’t mention China even once.
The delicate relationship between CBDCs and banks
To set the scene, Bitcoin Policy Institute report explains why central banks are against bitcoin:
- “For obvious reasons, central banks have been, at best, ambivalent about Bitcoin. They feel in some of its functions a potential existential threat: Bitcoin has automated the issuance and transaction of hard money, calling into question the role of central banks in economic life”.
BTC price chart for 09/29/2022 on Bitstamp | Source: BTC/USD on TradingView.com
Under a bitcoin standard, central banks are obsolete. On the other hand, if the US creates a CBDC they would be the kings of the castle. The center of the whole system. Which sounds fine to them, until you throw in the factor of private banks.
- “CBDCs are digital cash versions of paper banknotes. Because cash is issued by central banks, CBDCs allow consumers to have direct relationships with central banks instead of relying on commercial banks to serve as intermediaries between the two”.
The first question is: will private banks go out without a fight? The second is: would a CBDC standard also wipe out the entire financial system? What about loans and borrowing, for example? Are central banks equipped to absorb all the services offered by commercial banks? The whole situation recalls that classic scene from Mr. Robot that has been around Twitter lately:
Exclusive images of what’s happening at each central bank right now pic.twitter.com/ttaNRVP4g8
— Interstellar (@InterstellarBit) September 29, 2022
Does the end of cash mean the end of privacy?
- “Both the imposition of CBDC and the removal of physical cash will also remove the ability to transact anonymously. This destruction of the last vestiges of financial privacy is touted by governments as necessary to prevent financial crimes”.
Leaving aside the ineffectiveness of KYC and AML procedures to prevent crime, there is the fact that privacy is a human right. And, as the Bitcoin Policy Institute says, “those calling for the deployment of a CBDC are naive to believe that this can be done without establishing a centralized monitoring system for all financial transactions.” The feature is so trivial to add that it would be an element of CBDCs whether we want it or not.
- “Central bank digital currencies (CBDCs) represent an extension of this state control over economic life. CBDCs provide governments with direct access to all transactions in that currency made by anyone anywhere in the world.”
The government people present this as some sort of victory and play it off as if it helps them prevent crime. The fact is, they don’t want that kind of power. They think they do, but they don’t. Privacy is absolutely necessary for freedom to exist. And there is already a lack of financial privacy as it is. Not only that, “as governments around the world routinely share data with each other, individual transaction data will quickly become known to any government in a data-sharing agreement.”
The technological element of CDBCs
Changing subjects slightly, the Bitcoin Policy Institute presents another hurdle for CBDCs. This one would be hard for governments everywhere to admit, but it makes all the sense in the world.
- “A CBDC requires a robust, highly secure, extremely reliable and regularly updated technical infrastructure to implement and maintain. So far, governments, even in the software-advanced countries of the United States and the United Kingdom, have demonstrated that the design, software delivery and maintenance are not their forte.”
Will governments suddenly become technology providers? At the same time, does it absorb all the functions of commercial banks? That just doesn’t seem feasible. And the affected institutions will not accept it sitting down. So are CBDCs a pipe dream? Maybe they are.
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