A Glimpse Into Tomorrow With CBDCs – Utopian Innovation or Orwellian Nightmare

In their essence, CBDCs are blockchain-based fiat currencies that function similarly to cryptos and are controlled by central banks – hence the dystopian considerations.

Let’s delve deeper into the complexity of CBDCs and discuss a few arguments why they can be both bad and good for the public.

The utopian vision of CBDCs

Two main arguments for CBDCs are bridging the unbanked gap and empowering the underprivileged.

CBDCs seek to eliminate barriers that have excluded a significant part of the world’s population from traditional banking services – at least, that’s what central banks and governments want us to believe.

The main argument for CBDCs is to let unbanked and banked citizens have a digital alternative to conventional banking.

It can potentially create opportunities for economic participation and empowerment.

CBDCs are alternatives for cryptocurrencies that are widely used for online transactions for varying purposes.

In financial markets, financial trading, entertainment, finance and many other sectors, cryptos are becoming a popular method for storing and transferring value.

They are fast and secure and do not require middlemen.

Ways to maintain privacy could include using alternative digital currencies for important activities such as financial trading, or using special types of accounts that require no financial involvement from the citizen’s side.

CBDCs should provide similar capabilities to traditional fiat currency, making them flexible to modern technology and developments.

The main utopian narrative for CBDCs is empowerment for marginalized communities.

Reduced reliance on intermediaries and user-friendly digital interfaces allow CBDCs to grant underprivileged greater control over their finances until they agree with their governments.

The main issue with CBDCs is that governments can freeze any opposition assets, rendering their financial capabilities almost zero.

We will discuss the dark side of CBDCs in more detail below, but for now, we should agree that they can really have use cases for creating a more advanced society.

Since our civilization tends to follow and adopt technical advancements, CBDCs are here to stay, and they have serious challenges to resolve.

Efficiency and transparency

CBDCs have several advantages over traditional banking, allowing more streamlined transactions.

It is possible to simplify the process of transferring funds using CBDCs, as they are built on distributed ledger or blockchain technology.

CBDCs are undeniably efficient as they can decrease transaction costs by eliminating the need to physically transfer money from one location to another.

As everything becomes digital, it can make financial services easier and faster, but only in theory.

In reality, CBDCs might face the same challenges as cryptos – scalability issues.

The one prominent way to resolve this issue while making transferring digital currencies faster is to give up on security, as the servers for blockchain will have to be controlled by central banks and governments.

Despite many of the challenges, CBDCs can be an effective solution for combating corruption.

Because of their transparent and traceable nature, citizens can see what the government is doing with their budget.

It can be a very effective tool in the hands of democratic societies and forces governments to be more accountable and responsible as it will be much more difficult to hide any spending from the public eye.

The anti-corruption aspect is fundamental to the utopian visions of CBDCs as instruments of integrity in the financial landscape.

Centralized control for stability

CBDCs are direct tools for central banks to implement monetary policies, to have more precise control over money supply, interest rates and overall economic conditions.

Theoretically, they enable central banks to swift and targeted interventions, strengthening monetary stability and responsiveness to challenges.

This is all possible because of the centralized nature of CBDCs, and this is where the main threats hide.

The Orwellian concerns surrounding CBDCs

The most dangerous part of CBDCs lies in their strongest side – centralization that makes them fast also raises privacy and surveillance dangers.

While governments may try to find ways to hide some of their spending from the public, one thing is for sure – they will monitor and see all the transactions of their citizens.

Central banks that are part of the governments and usually controlled by them will be able to freeze any person’s financial assets that may have opposing views different from governments.

This threat is especially realistic in autocracies, where they can hide government spending from the public while closely monitoring and controlling the finances of their population.

To counteract these issues, there must be other methods for conducting financial transactions for opposition, including Bitcoin and other cryptos.

Tracing and digital footprint

The digital nature of CBDC transactions allows banks to monitor digital footprints.

The monitoring of individuals’ financial transactions may have no bounds, allowing central banks to track all transactions without exceptions.

The detailed and unchangeable records of transactions pose a risk to user privacy, offering an extensive view of personal financial behavior.

Oppressive governments might exploit this information to quell opposition effectively.

CBDCs centralize financial control in the hands of governments and central banks.

This is a direct threat to democracy and the potential for government overreach is highly likely.

Authorities will be able to monitor, control and even restrict individuals’ financial activities.

Striking a balance between leveraging CBDCs for regulatory purposes and protecting individual privacy is crucial in addressing the Orwellian concerns.

The future of CBDCs – striking a balance

The one important characteristic of advanced democratic societies that effectively employ CBDCs’ advantages is the balanced implementation of these digital fiat currencies.

The path toward CBDCs, therefore, should be navigated with extra caution and a strong sense of responsibility.

Considerations for achieving a balanced implementation should include the following.

Responsible implementation

Implementing CBDCs responsibly must be the top priority for governments to ensure economic stability, and financial inclusion, and minimize potential risks.

Robust regulatory frameworks, gradual adaptation and collaboration with stakeholders can foster a smooth transition.

Addressing privacy concerns

Addressing the Orwellian concerns about privacy is critical. Implementing powerful privacy measures, encryption protocols and clear user protections are top priorities.

Striking the balance between transparency and individual privacy will decide if CBDCs can be accepted widely.

Collaborative efforts for global standards

Collaboration between nations, regulatory bodies and financial institutions is a must.

Establishing international standards for CBDCs will help mitigate risks, ensure interoperability and foster a cohesive global financial landscape.

International standards are working successfully in many critical directions including information security management, quality management, environmental management, health and safety and many more.

The same should be done for CBDCs to ensure the humane implementation of this technology.

Conclusion

CBDCs place never-before-seen power and capabilities in the hands of governments and their central banks. This unparalleled power can be used for both good and evil equally.

The main utopian arguments for CBDCs include giving the unbanked the ability to execute financial transactions digitally with ease, promoting economic stability and growth and allowing the underprivileged to get quality financial services at low costs.

The Orwellian views that have more sound arguments include the opportunity for oppressive governments and autocracies to use CBDCs for increased control and tracking their opposition.

The ability to fully monitor all the financial transactions and assets of the opposition can become a dangerous and potent weapon in the hands of governments.

They will be able to freeze assets and make it considerably more difficult for the opposition to have leverage over the government.

Solutions should include international standards that address these issues with a striking balance between privacy and transparency.

Konstantin Rabin holds a Bachelor’s degree in International Business from the University of Groningen, the Netherlands. He has been working in the retail FX sector since 2010 and was heading the marketing department of one of the largest European brokerages and a financial data aggregation company.

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