Commentary

CBDC is dangerous for free societies

Central Bank Digital Currencies (CBDC) make it possible for the government to see and control your wallet all the time. That is why they want it.

A few weeks after he announced that Putin is right and digital currencies must be banned, Hungarian central bank president followed up and told us what he wants instead: digital currency issued by himself.

He also shared his little thoughts on how that would finally undermine the western economic order, and presumably make the autocratic east triumphant and feel less like a loser.

Pseudo-spenglerian brain farts aside, CBDCs have very real threats – but to citizens. They combine the power of controlling the currency and the power of surveillance over citizens’ resources in the hands of states.

I am not going to insult your intellect assuming that central banks will be allowed to stay independent if they no longer serve their political purpose (making debt cheaper for governments by supposedly stopping money printing to finance said debt) and when they have so much information on citizens. Because a central bank issued digital currency would render two-tier banking moot, where banks played a part in the transmission of the central banks’ monetary will. It could now do it directly.

CBDC would allow states (central banks) to combine the control of resources with the total surveillance thereof:

  • control of the money supply
  • control of who owns what
  • total surveillance power over your resources

The unholy trinity of totalitarianism.

What central bankers are promising and the honey-smeared carrot they are offering is that they can directly slip money into our pockets in a CBDC regime. Because 1) they will hold our accounts directly and 2) they will know exactly how deserving each of us are.

Isn’t is heart-warming? Haven’t you just imagined a big sum arriving to your account for some policy reason, like Covid or war or a regular payment for life – or simply just an approaching election? And we have to believe that they will not use that tool to enrich themselves and well-connected friends – like they always do with every other tool they have.

I make an equivalence between central banks and the government in this one and not just because the Hungarian one happens to be in cahoots (openly and proudly) with the government. I consider governments and central banks one and the same because at that point they will be. Controlling who owns what, directly, is not something governments will allow to stay independent for long. (And central banks are not at all independent in autocracies, so even the assumption that CBDCs would not be used to further autocratic goals is criminally naïve.)

Cash gave some degree of anonymity to resource ownership. No, not just for nasty-nasty criminals, but for legitimate citizens and to hard-pressed dissenters who had a lifeline from hostile, dictatorial regimes. Take the anonymity of cash away and the mafia will find other ways – but dissent will be stifled forever.

Bank accounts are no longer private. There are so many ways governments can access information on you it is a near-empty concept – except that is no reason to give up and to stop fighting against financial surveillance. Governments will always be quick to make this conversation about terrorists and criminals – but the real issue with financial surveillance by the state is that once information is stored and accessible it creates its own abuse.

If information of each and every wallet becomes available for state authorities, without any judge to allow it, that, too, will be abused. Stop fixating on criminals. Stop daydreaming about freezing the assets of your villains of the day, like Russian oligarchs.

The victims of such crackdowns will be the enemies of the politicians and the targeted enemies of the regime that will get financially annihilated. The Hungarian state’s current, official enemies are: LGBT people, civil society, oppositioners, and their rule is also threatened by investigative journalists and the media. What do you think they can expect under a CBDC regime? What do you think would happen to dissenters in Russia under such a CBDC regime?

The small limitation of the central bank’s ability to manipulate the money supply is a small price to pay for the last refuge of the dissenters. If your resources will be totally transparent to the state we will be at the mercy of the political leader of the day. And even if you trust one set of politicians that much – you must still have enough brains to fear that power if it gets into the hands of the other set of politicians that you think are evil. The only solution is not to create those powers of surveillance at all.

It would be worth a paper to compare the various pros and cons of various types of money. Cash, money in the bank, Libra, crypto, gold and CBDC. And when I mean pros and cons, those are not the same for regimes and you. The ones that allow independence from the money they control are targeted because the control of your resources is the essence of power. Of course the corrupt, power-hungry autocrats are craving every last bit of control over it.

And if you want to cringe, just think about the Chinese social credit system. That your trustworthiness to the regime is linked to your wallet – and thus your ability to buy basic services like train tickets. Don’t just assume that only criminals will get punished this way. It will be whoever the state will target as an enemy. And that can be queer people, childless women, various religions, parties, independent thinkers or just oligarchs that are too powerful. It can be your company because you are getting too successful and confident. It can be your parents’ wallet that is emptied to force you to back down even when you personally wouldn’t. It will definitely be anyone who is financed from abroad (“foreign agent” in autocrat parlance) whether it is a freelancer or an NGO making sandwiches for refugees and painting hospitals because the government would not.

CBCDs are not a brave new world but the end of free societies. Once you give that power to a government it will never be replaced by peaceful means.

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