Nick also has a new CBDC book that will be released this Tuesday, titled Digital Currency or Digital Control? Decoding CBDC and the Future of Money.
People familiar with Cato’s work will recognize some of the arguments, but the book is more than just a repackaging of what we’ve already done. While I’m biased, I agree with tech journalist Naomi Brockwell, who says that Nick’s book “is a timely wake‐up call,” and “an indispensable read for anyone concerned about the encroaching digital transformation of money and the erosion of individual privacy.”
Like Nick, I’ve found it very rewarding to be involved in the CBDC debates these last few years, but also amazed at how many people have not heard about CBDCs. Still, the most frustrating experience I’ve had during these debates is dealing with CBDC advocates who think that a CBDC can be designed to protect privacy and individual freedom.
They’re misreading what a CBDC really is, as well as what drove people to create decentralized digital currencies in the first place. They’re also ignoring the plain language that central bankers are using to promote CBDCs.
Let’s start with monetary policy. Supposedly, a CBDC will help central banks better implement monetary policy because they’re a direct line to speeding up or slowing down spending. With the tap of a button, for example, the central bank can put money into someone’s account.
CBDC advocates love to talk about putting money directly into people’s wallets, but few like to talk about the flip side, where central bankers stop people from spending money. If you don’t believe me, here’s a clip of an assistant governor of the Malaysian central bank trying like crazy to avoid answering whether the central bank would “frustrate” individuals’ payments. (For the record, some government officials boast about having this power.)
Please judge for yourself.
Many CBDC advocates miss—or don’t care—that the whole point of a decentralized digital currency is that no central authority can stop two people from conducting a transaction. There is no central authority in control of it. So there’s absolutely no reason for a central bank to release software for its own decentralized digital currency. Doing so would be releasing something they have no control over. It makes no sense.
But it would make sense, from a technical standpoint, for a central bank to release a digital currency that they can control. And that’s really where most of the problems lie. Put differently, a CBDC is not just the government’s version of BitcoinBitcoin -0.8%. It is, instead, a payment instrument centrally controlled by the government.
Even if the government did launch some kind of restricted bearer instrument as a new digital currency, it would have to do so by maintaining tight control over it. It could restrict the amounts or the individual users directly, but it would be nothing more than a government‐permissioned payment instrument.
Maybe that would work out great at first, but experience already tells us what would happen in the long run. As Roger Huang, author of Would Mao Hold Bitcoin?, noted in Oslo last week, “The more control you give a government, the more they will exert that control.”
That’s just what governments do, and it’s baffling to watch so many bright people in Washington DC entertain a different reality.
As I’ve pointed out before, a fully implemented CBDC gives the government complete control over the money going into and coming out of every person’s account. This level of government control is incompatible with both economic and political freedom.
A CBDC is the perfect tool for the Chinese communist party, and that’s exactly why all non‐autocratic governments should avoid creating one.
