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Around the campfire: Big Brother Digital Currencies

Like most of you, I presume, I strongly feel that how I use my money is my own business. I don't see why anyone should be able track or control my use...

15 April 2021

Jason Cozens

Like most of you, I presume, I strongly feel that how I use my money is my own business. I don’t see why anyone should be able track or control my use of money to gather data about me or my personal tastes, or to extend in any way their surveillance over me.

Not that I have anything to hide – it’s just that how I choose to use my money seems a deeply private affair. Which is one reason for using gold as money – gold is the most universal and private store of value there is, as it owes its creation to no human. Anything made by humans can be corrupted and abused.

So I am watching with some trepidation the onward march of Central Bank Digital Currencies (CBDCs). Pretty soon governments everywhere will try to foist these cash-substitutes onto their citizens.

Ironically, cryptocurrencies were created to escape the relentless devaluation of fiat currency (cash); yet governments are now going to use the technology underpinning cryptocurrencies – blockchain – to re-assert their power over how we use the money they create, by developing CBDCs.

The world’s central bankers are accelerating their efforts to coordinate and roll-out CBDCs; they are alarmed that China’s own CBDC will leave them standing.

China is often thought of leading the charge on CBDCs but actually the National Bank of Cambodia (NBC) last October launched a payment system called Bakong, co-developed with Soramitsu, a Japanese blockchain start-up. The NBC hopes that the Bakong will stem the decline in use of the national currency, the Riel. Most transactions in Cambodia are in US dollars and the Riel is losing its status as money.

More than a dozen countries are in the process of developing their own CBDC. The deputy governor of China’s central bank, the People’s Bank of China (PBoC), recently wrote in Yicai Global that China’s CBDC should be used on a “controllably anonymous” basis and that “complete third-party anonymity… may encourage criminal activities”. “Controllably anonymous” sounds like a contradiction in terms. India said earlier this year that it is considering criminalising private cryptocurrencies while building a framework for its own official digital Rupee.

China’s CBDC has already been steadily introduced via the state giving away millions of its currency, the Renminbi (which means “the people’s currency” in Mandarin) in a series of state-run lotteries in various cities. Users have to download an app to receive the currency.

In reality, China’s CBDC will be a “stablecoin”, i.e. pegged to the Renminbi. This, hopes Beijing, will prevent speculators from driving it higher or lower. It will also, hopes the Communist Party, knock privately-generated cryptocurrencies – trading of which is banned in China, even though an estimated 65% of global Bitcoin mining happens in China – for six.

 

 

Stablecoins have other advantages for governments, too. They are programmable; in early testing for instance the Renminbi version had an expiry date, encouraging holders to spend it more quickly. It was also trackable, allowing closer monitoring of Chinese citizens.

With such state control all kinds of things become possible – such as the immediate issuing and collecting of fines.

This kind of stuff gives me the creeps. So when I read (as I did this week) that a senior member of the Bank of Japan says that seven central banks – including the US Federal Reserve and the European Central Bank – are now jointly looking into setting a common framework for CBDCs, I sniffed Big Brother around the corner.

Money is power. But money and power are in a confusing flux right now. Privately-generated cryptocurrencies (which are extremely difficult to use as money) are facing a steady but relentless challenge by government stablecoins. And as governments everywhere try to push their digital cash on their citizens, the scope for government control over how, when, and where they can use that money will expand willy-nilly.

To avoid even the risk of that kind of supervision and interference I will be using my Glint card, and its gold, even more in the future.

Until next week!

Jason.

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