CBDCs in their own words: Technocrats black-pill us on the future of money

In financial circles, CBDCs — central bank digital currencies — are being talked about as an inevitability. Twenty-nine countries have already implemented CBDCs or pilot programs, including China, India, Nigeria, Jamaica, the Bahamas, UAE, Australia, Singapore, and Thailand, with 114 more exploring them. Here in the U.S., the Federal Reserve and the Biden administration have been actively investigating the possibility of implementing a “digital dollar.” Even the Bank of America has declared that CBDCs are “the future of money.”

But if you’re not in finance and you’ve heard of this technology, it’s probably because you’ve seen dark warnings about the prospect of CBDC-enabled digital tyranny from crypto enthusiasts or from your MAGA uncle on Facebook. Conservative politicians like Ted Cruz and Ron DeSantis are pushing to outlaw CBDCs, and as justification for their proposed ban, they cite apocalyptic scenarios that sound straight out of an InfoWars clip.

Surely CBDCs can’t possibly be as bad as the critics say, right?

To sort fact from dystopian fiction, we did a deep dive into what U.S. and international monetary authorities are saying about CBDCs. What we learned is that, actually, yeah – it’s shockingly bad. It’s even InfoWars-level bad.

But please don’t take our word for it. Read on to see what authorities have publicly said about this technology and their plans for it.

Summary:

• The appeal of CBDCs for technocrats is unprecedented control over the money supply – it’s “programmable money” that can be tracked and restricted. The alleged benefits to ordinary citizens are far vaguer.
• CBDCs may or may not be blockchain-based. Multiple schemes are being floated.
• It is possible to create a CBDC that’s every bit as privacy-preserving as paper cash, but oddly enough, the authorities don’t seem enthused about this option.
• Much of the really negative stuff you’ve heard about CBDCs – the Book of Revelation-sounding stuff – is well sourced and based on non-exaggerated readings of statements from monetary authorities.
• In places where CBDCs have been tried so far, the results are not promising.

The official CBDC pitch

CBDCs are often thought of as cryptocurrencies like Bitcoin but controlled by a central bank. That’s probably close enough to a definition for most people, but it isn’t quite accurate.

Unlike distributed cryptocurrencies like Bitcoin, CBDCs are centrally issued and more like NFTs minted on Ethereum. They may or may not be based on blockchain technology, but all new funds are created by a central bank, not by a distributed network of miners or stakers.

In all of the hype and discussion about CBDCs, their proponents haven’t done a great job explaining the supposed benefits of this idea. Neel Kashkari, president of the Federal Reserve Bank of Minneapolis, went on a rant about this.

“I keep asking anybody, anybody at the Fed or outside the Fed, to explain to me what problem this is solving. I can send anybody in this room $5 with Venmo right now. So what is it that a CBDC could do that Venmo can’t do? And all I get is a bunch of hand-waving,” Kashkari said in a recent video.

Publicly, officials are vague about what problems a CBDC would solve, especially as they simultaneously bash cryptocurrency. One of the arguments is inclusivity for the unbanked. However, here in the United States, only 4.5% of the population is unbanked — not exactly an epidemic. That reason also makes little sense because a CBDC would theoretically partner with existing commercial banks, much like China.

In fact, it’s hard to envision a CBDC working in any other way. The financial sector accounts for up to 25% of the world economy, making it an industry governments aren’t terribly interested in experimenting with.

The Fed says as much:

The Federal Reserve Act does not authorize direct Federal Reserve accounts for individuals, and such accounts would represent a significant expansion of the Federal Reserve’s role in the financial system and the economy. Under an intermediated model, the private sector would offer accounts or digital wallets to facilitate the management of CBDC holdings and payments. Potential intermediaries could include commercial banks and regulated nonbank financial service providers, and would operate in an open market for CBDC services.

In plain English: The Fed isn’t interested in completely replacing commercial banks, at least not the big ones.

Another publicly pitched CBDC benefit is the cost and speed of moving money across borders. There are actually two separate pitches here that often get conflated:

1. Bank-to-bank transfers.
2. Transfers originating from regular users to parties outside their home country.

That first category of transfers is what the U.S. has been looking into so far. Allowing financial institutions to transfer funds to one another on a public ledger could be a significant improvement over the current system, which sometimes takes days to settle trades and exposes the banks to some counterparty risk. But the obvious answer is just to improve the systems and processes we already have. There doesn’t seem to be a technical reason why it takes days to move money, and in fact, in a recent panel discussion on CBDCs, a SWIFT representative claimed that over half of SWIFT payments settle in five minutes or less.

In the Face of Fragility: Central Bank Digital Currencies | Davos 2023 | World Economic Forum youtu.be

In the consumer market, promises of faster transactions may not pan out. Per McKinsey: “Also, CBDCs may not confer the increased speed as predicted. Many developed countries now activate instant payments using legacy (nonblockchain) infrastructure.”

If you want to get to the bottom of what CBDCs are really about, you have to go digging into white papers and watching videos from authorities who think centrally managed digital cash is a grand idea.

CBDCs are about control

So if the end user benefits of CBDCs are vague and not very appealing, what’s the appeal to authorities? By way of answering that question, let’s have the current head of the Bank of International Settlements, Agustin Carstens, give us a quick summary of what he considers the important differences between CBDCs and traditional cash:

Bank for International Settlements head Agustin Carstens about CBDC and control youtu.be

Transcript:

In our analysis of CBDC for general use, we tend to establish the equivalence with cash, and there is a huge difference there. For example, in cash, we don’t know who is using a $100 dollar bill today; we don’t know who is using a 1,000 peso bill today. A key difference with the CBDC is that the central bank will have absolute control on the rules and regulations that will determine the use of that expression of central bank liability, and also we will have the technology to enforce that. Those two issues are extremely important, and that makes a huge difference with respect to what cash is.

You can see from this short clip that the appeal of CBDCs for central bankers and other authorities seems to be primarily about the control the technology could give them over the money supply – not just the amount of money in circulation, but who uses it and for what.

That control comes from three likely qualities of an officially sanctioned digital currency:

• Monopoly: The case for alternate digital currencies like Bitcoin gets weaker if an easy-to-use CBDC works similarly and has been mandatorily integrated into a country’s payment rails (or at least, authorities hope this is the case).
• Programmability: The amount of money in circulation can be tweaked, and specific end-user wallets could be prohibited from engaging in certain types of transactions.
• Traceability: The authorities can see who’s paying who, and for what, down to the smallest transaction.

Let’s look at each of these in turn.

Monopoly money

On the monopoly front, China has implemented the digital renminbi because of the perceived threat of cryptocurrencies like Bitcoin and digital cash apps like WeChat. The Harvard Business Review offers the following explanation of why China is pushing a CBDC:

Part of China’s motivation for introducing a CBDC is to reduce the country’s dependence on Alipay and WeChat, which currently account for 94% of online transactions, $16 trillion in value. It also helps reduce the threat from independent digital currencies such as Bitcoin, which could potentially threaten governments’ ability to manage their economies, not a prospect that a Chinese government would view with equanimity.

Of course, China wants more control, but Western leaders have similar aims. Christine Lagarde, president of the European Central Bank, has said as much:

“We have been operating as a monetary anchor in relation to the private banks and the private money. If we are not in that game, if we’re not involved in experimenting, in innovating in terms of central bank digital money, we risk losing the role of anchor that we have played for many, many decades,” Lagarde said.

Lagarde was a bit more unguarded in a recorded prank call in which she thought she was speaking with Ukrainian President Volodymyr Zelenskyy.

“The reason I’m personally convinced we have to move ahead is a situation like the one we are in now. We are dependent on the supply of gas by a very unfriendly country. I don’t want Europe to be dependent on an unfriendly country’s currency. … I don’t want Meta, Google, or Amazon to suddenly come up with a currency that will take over the sovereignty of Europe. I don’t want a foreign currency to become the currency of trading within Europe,” Lagarde told the Zelenskyy impersonator.

A report from Deloitte mirrors Lagarde’s sentiments, identifying a “need to bring central banks back to the centre of currency creation and trust.”

Programmable currency

A CBDC wouldn’t just secure existing central bank control of currency; it would implement a brand-new method of control in the form of programmability.

Some cryptocurrencies, most notably Ethereum, are “programmable,” which means the issuance and use of on-chain tokens can be governed by bits of code called “smart contracts.”

• A customer and a vendor could set up a smart contract that triggers an automatic monthly payment for services if certain conditions are met.
• The smart contracts that govern many popular non-fungible tokens allow the contract’s owner to issue new tokens and “airdrop” them into users’ wallets.
• Some NFT smart contracts also let their owners “burn” tokens, i.e., the token can be deleted form a user’s on-chain wallet without the user’s knowledge or consent.
• Smart contracts can be configured so that their tokens can only be sent to wallets that meet certain conditions.

All of these capabilities could theoretically give a central bank virtually unlimited flexibility to control both the supply and the uses of its CBDC.

On the supply front, a recent New York Times editorial features a professor of trade policy at Cornell University openly fantasizing about the possibility that a central bank could spur consumer spending by simply deleting unused funds from citizens’ bank accounts, forcing them to run to the store before their money disappears:

A central bank digital currency can also be a useful policy tool. Typically, if the Federal Reserve wants to stimulate consumption and investment, it can cut interest rates and make cheap credit available. But if the economy is cratering and the Fed has already cut the short-term interest rate it controls to near zero, its options are limited. If cash were replaced with a digital dollar, however, the Fed could impose a negative interest rate by gradually shrinking the electronic balances in everyone’s digital currency accounts, creating an incentive for consumers to spend and for companies to invest.

As for automated payments, a Federal Reserve document offers an explanation and example of how a programmable digital dollar could make that happen:

Finally, a CBDC might generate new capabilities to meet the evolving speed and efficiency requirements of the digital economy. As noted above, for example, a CBDC could potentially be programmed to deliver payments at certain times. Additionally, a CBDC could potentially be used to carry out micropayments — financial transactions that usually occur online and involve very small sums of money — which traditional payment systems are not necessarily designed to facilitate.

The Harvard Business Review notes that programmability would let the Fed pay interest to consumers directly, giving it much greater control over economic incentives:

And by paying interest on CBDC holdings, however, the central bank can directly transmit monetary policy to households, instead of influencing commercial deposit rates through the rates it offers banks on their reserve accounts with the central bank. Today, with money held in commercial banks, the policymaker can only influence consumer and business behaviors indirectly.

Growing and shrinking the money supply by putting money directly into bank accounts or taking it directly out of bank accounts is great and all, but the real leverage lies in the central bank’s ability to decide how the money can be spent and by whom. We’ll hand the mic over to Bo Li, the current deputy managing director of the International Monetary Fund, so that he can explain this particular benefit of CBDC programmability to you:

Transcript:

The third way we think CBDC can improve financial inclusion is through what we call "programmability." That is, CBDC can allow government agencies and private-sector players to program, to create smart contract[s], to allow targeted policy functions. For example, welfare payments, consumption coupons, food stamps – by programming CBDC, those money can precisely targeted for what kind of people can own [it] and what kind of use this money can be utilized. For example, for food. So this potential programmability can help government agencies to precisely target their support to those people who need support, and in that way can improve financial inclusion.

Did you get that? A CBDC can be programmed so that only specific people can hold it and spend it on specific things. Sounds great, right?

Tracking every dollar

Cryptocurrencies are often touted as being private, but their central enabling technology – the blockchain – can run counter to that promise. The blockchain is a public, distributed ledger of every transaction ever performed with that currency. So it’s entirely possible to take a given fraction of a Bitcoin and trace its path back to when it was first mined, even if it’s been run through an anonymizing “mixer.”

In fact, the blockchain’s transparency is often publicized as an advantage of CBDCs for countering crime. When you combine distributed ledger technology’s transparency with know your customer requirements, you have the necessary tools for total financial surveillance.

Per the Harvard Business Review:

In a CBDC world, all transactions could in theory be monitored with the help of data analytics and AI in order to more quickly identify banks that are struggling or are engaging in questionable transactions. At present, financial regulators must rely on the reports provided by banks, which means that remedial action comes late and often at a greater cost. In addition, in a CBDC world in which digital bank codes are visible to the clearing institution, it becomes much easier for the authorities to identify the parties to a transaction, which greatly simplifies the detection of criminal activity and eliminates the black markets characteristic of countries that deal largely in physical money.

The Federal Reserve stresses the know your customer part of the CBDC-powered financial surveillance picture:

Financial institutions in the United States are subject to robust rules that are designed to combat money laundering and the financing of terrorism. A CBDC would need to be designed to comply with these rules. In practice, this would mean that a CBDC intermediary would need to verify the identity of a person accessing CBDC, just as banks and other financial institutions currently verify the identities of their customers.

The Europeans are also salivating at tracking every last fraction of a euro. In the aforementioned conversation between Lagarde and fake Zelenskyy, not only did Lagarde frame a European CBDC as resisting foreign control, but she was equally quick to point out how a CBDC would also enable European governments to trace and track small payments arbitrarily.

Now we have in Europe this threshold above 1,000 euros you cannot pay cash. If you do, you’re on the gray market. If you get caught, you are fined or you go in jail. But the digital euro is going to be a limited amount of control, but there will be control, you’re right. We are considering whether for very small amounts, anything that is around 300, 400 euros, we could have a mechanism where there is zero control, but that could be dangerous. The terrorist attacks on France, back 10 years ago, were entirely financed by those very small anonymous credits cards you can recharge in total anonymity,” Lagarde said.

(Relish the irony of the head of Europe’s central bank lecture about control to an obviously phony Zelenskyy.)

The Fed’s Neel Kashkari has flagged the obvious optics problem with all of this transparency:

We agree with Kashkari – this sounds bad.

CBDCs don’t have to be evil

From a technical perspective, it’s definitely possible to make a CBDC that’s a true form of digital cash – a privacy-preserving bearer instrument that can’t be tracked or centrally controlled. This thread has a number of proposals to that effect:

David Chaum, one of the first cryptocurrency champions who founded eCash, is now working with the Swiss National Bank on Project Tourbillon, designing a central bank currency focused on maintaining users’ privacy.

Chaum’s technology promises quantum-resistant cryptography with robust privacy features. Basically, it relies on a two-tiered system where transactions are hidden because there isn’t a blockchain recording transactions, only the issuance of the initial coins. Users could voluntarily give up their transaction history to law enforcement if they were stolen so authorities could track it. Mr. Chaum has developed these technologies to directly counter the control of financial transactions currently exercised in China.

While it’s heartening that private versions of CBDcs are possible, it remains to be seen whether central banks are interested in creating currencies they don’t have control over. In reality, control seems to be the entire point of these products.

Is this really happening?

Regardless of how grim the CBDC picture looks, you may not have much choice if one is adopted in your country. After Nigerians took to the streets to protest a cash shortage, many are finding no other choice than to use the eNaira simply for lack of other options.

CBDCs in the West may be a few years away. However, it’s clear the central bankers from Davos to London to New York are making a concerted effort to accelerate their implementation.

The Federal Reserve’s FedNow money transfer service is set to go live this summer. The service is touted as a way to transfer payments instantly or settle accounts 24/7. While the promise of instantaneously having access to funds is enticing, some in the financial industry are suspicious of what looks like a power grab. Having the Fed controling all financial transactions would completely upend how money moves in the economy. It could also be laying the infrastructure for an eventual CBDC rollout and complete government control of the financial market.

Economist Richard Werner laid the endgame for FedNow in an interview with journalist Michelle Makori.

This is just the beginning, because the real totalitarian aspect comes into it when the programmability can be used, where it can be totally fine-tuned down to the person and in real-time influence our behavior by restricting us from doing certain things. … You’ll need the permission of the central planners.”

Even if you assign the best of intentions to these institutions (which, after the last few years, why would you?), the level of control we would be handing over to the central banks is frightening. With the click of a button, they could shut off banking access to anyone they deem an enemy. Preppers, anti-war leftists, religious dissidents, “cryptobros,” or the political boogeyman du jour could all be simply unbanked. If you don’t think that’s possible, ask the Canadian truckers.

What can be done?

If we’ve convinced you and you’re now as worked up over this as we are, the next obvious question is: What can we do about it?

We recommend a two-pronged approach:

1. Voice: Write your representative, share this article and other CBDC information with others, and generally make some noise about this issue. Maybe we can still stop this, and if we can’t stop it, then at least we can buy ourselves some time to prepare the second option, which is …
2. Exit: You need to be digital sovereignty-maxxing. You need to be going dark. You need to be dragging your friends and family with you out of the matrix as you flee. Gather the knowledge and tools to be your own bank and host your own cloud. Buy your own hardware and learn to run it.

To help with the exit option, digital sovereignty is a major theme we’ll be covering. So if you’re preparing yourself and your community to digitally go to ground, then be sure you’re signed up so you don’t miss any of the upcoming guides, reviews, and interviews on this topic. And if you can afford it, please consider actively joining the fight with a paid subscription.

Further reading

• Harvard Business Review: What If Central Banks Issued Digital Currency? Ajay S. Mookerjee
• Your Money AND Your Life Edward Snowden
• World Economic Forum: Central Bank Digital Currency? How money could be redesigned
• Intersecting Globalist Agendas: CBDCs Nicholas Creed
• Central bank digital currencies: An active role for commercial banks Mckinsey
• Money and Payments: The U.S.Dollar in the Age of Digital Transformation Federal Reserve White Paper
• Why the U.S. Should Reject Central Bank Digital Currencies Natalie Smolenski, Dan Held
• I Want to Stop CBDCs – What Can I Do? Catherine Austin Fitts
• The ABCs Of CBDC, The Great Reset(s), & More Centralized Control Mathew Piepenburg
• Central Bank Digital Currency: The Risks and the Myths Nicholas Anthony, Norbert Michel
• We Have Been Harmonized: Life in China’s Surveillance State Kai Strittmatter
• Why central banks should not push ahead with CBDCs Tony Yates