The Future of CBDCs and Emerging Global Digital MarketApril 5, 2022
No country in the world offers a constitutional right or a legal guarantee that any citizen will be able to spend their money however they like. In theory, all fiat currencies and the government systems behind them allow just this, but in practice, money is similar to speech. Spending it offers a form of expression that is still regulated by other laws and the broader social environment. The same problem began to appear in the US as the government is studying the possibilities of introducing a central bank digital currency or a CBDC. As a form of a digital dollar, which many are already calling it (even though there are other dollars besides the USD), this particular CBDC would be a huge step in turning coins and cash of the physical nature into a true internet-based digital currency of the world.
Yet, many analysts feel that this is no more than a utopian visitation that even many real countries – including those which are friendly to the USA – do not share at all. The same vision has problems in almost any aspect of its overall functionality, starting with its technical features and going all the way to the global regulatory mechanisms. But, even with these hurdles, similar to the BTC token and its gradual spread across the world, the US CBDC seems like a historical certainty. Now it remains to be seen how the same eventuality will actually take form in the economic and financial realities of an interconnected world, but also one that is presently deep in numerous crises and instabilities.
Microeconomic versus Macroeconomic
A lot of central bank officials who support CBDC as a concept, always point to a high level of controls that a centralized state-run ledger of monetary dealings can provide to its users. That is why, for example, the digital dollar offers so many advantages and possibilities. It provides a means of automating tax collection, settling issues inside of welfare payments, and even regularly informing users about changing interest rates.
That would mean that it offers a balance of microeconomic and macroeconomic factors, all rolled into one. That is a powerful incentive for the overall use of CBDC and it comes from two different quarters. On one hand, the end-users have so much to gain from this versatile concept of financial services. On the other hand, those running the CBDC – meaning the central bank and the government of a particular country – also get a very effective and nimble tool, along with an almost unprecedented level of insight into the flows of the same currency.
The previously mentioned benefits of CBDC come down to the fact that like esports, social media, contemporary scientific research, and almost all things in the age of the internet, these digital currencies use the principles of big data. With the central bank digital currency, the world’s powers would get a perfect insight into how and where their national currency is being spent. Today, the world and the US government have no clue who is using 100 USD and what they are spending it on.
The same goes for 100 pesos, 100 EUR, or any other traditional currency. No nation, no matter how powerful or developed it might be, cannot gain the same insight. But with CBDCs, that very notion is not just a possibility, but something that would come to the same setup practically out of the box. Thanks to the same principle and big data systems for sifting through the same data, it would be possible for the countries of the world to track their currency on what would be now a completely unprecedented level.
For many across the world, this vision of CBDC, coupled with big data and government desire for oversight of their population, spells something more similar to a dark dystopian future than any kind of effective monetary system. But, the issues of privacy and damage to individual freedoms through big data transparency are not something that many would label as essential in any government circles.
While the nations across the world might be quick to pledge their allegiance to all basic human rights and freedoms, the truth remains that many seek to curb these for the sake of more effectiveness of any governmental system, In the case of national banks, the same systems are more than important for any government and any nation in the world. However, the danger of controls comes also with the ability to influence some positive consumer spending through direct stimulation of particular payment gateways.
Stimulation of Positives
The governments could do much more than simply follow the trail of money and provide information about and to its users. They could also stimulate and encourage some positive consumer behaviors, which are beneficial for the communities as much as they are for the entire natural environment. For example, a government could subsidize through the CBDC the purchase of renewable energy installations and related services. It could do the same for baby food or foods that are locally grown and more oriented towards plants. The same goes for anything else where digital currencies could be used – the system would be easily set up and maintained.
Mechanisms that exist in bitcoin’s BTC token have been around for over a decade and they have proven their value. Using these inside of a CBDC system is a relatively straightforward manner. Because of that, China’s digital yuan is already ready for use. The same applies to any present and future national bank digital currency. In other words, right now, there are mechanisms in place that allow for all of that and with a level of relative ease. But, their implantation will be political and social. Some parts of the population, especially those who are less tech-savvy, will resist them. The same applies to the political spectrum, where pressures on the CBDC concept could come from both left and right elements. Yet, the use of these types of currencies is a guarantee for the digital future of a world full of versatile challenges.