Central Bank Digital Currencies (CBDC) send chills up the spine of many. This is something that brings notions of tyranny and total government control. With programmable money, the ability goes far beyond surveillance.
For all the virtues that politicians and others espouse, we can easily see through the nonsense. This is not about banking the unbanked. Nor it is about creating a more equitable financial system.
Instead, it is about control.
These people want to control what the population does. This became evident over the last few years. We also have a hunt for taxes as governments spend a lot more than we bring in. To many politicians, if people would just "pay their fair share" of what is owed in taxes, then budgets would be balanced.
One universal truth about politicians and bureaucrats: they never take blame for anything.
Nevertheless, the conflict with CBDC continue.
In this article we will go through the 3 reasons why CBDC will fail.
1. Monetary History
The success of CBDC is opposed to monetary history. It is also directly against the reason money exists.
Many feel that governments control money. This is not the case. For much of history, money was in the hands of private institutions.
Even today, with central banks, we see the same thing evolved. Much of the world operates under fractional reserve banking. This means that the money supply, outside the banknotes, in the form of legal tender is supplied by the commercial banks. This is a far cry from the government.
So while many espouse how government control money, the bankers are really the ones who are responsible.
All of this makes sense when we recognize that money was created to make the facilitating of trade easier. Thus, it was for the benefit of merchants and business people, not governments.
Money was the evolution from barter. This was simply too inefficient as a means of sustained trade, hence the development of money.
While this took many forms throughout the year, it was the business community that decided what money was used. We see periods were ghost money, i.e. ledger based money, was commonplace. This occurred when the governments who did control the money supply messed up.
Simply put, if CBDC are not to the benefit of business, it will seek out another alternative.
2. CBDC Do Not Solve The Problem
Even if we take those promoting the concept of a CBDC at their word by believing their intentions are pure, we can see how this is failed.
CBDC will not create a more equitable financial system. We would still be operating with an exclusionary system that did not allow most to participate.
Digital wallets are a mere start to the process. Access to a host of financial services is vital. This is something that is not being discussed since most simply looks at the distribution (handout) of money and the ability to tax it.
If we want a new financial system, we have to realize that it is financial services that people require. Having a wallet allows them to send, receive, and store money, the same as cash. It does not, however, provide access to credit, insurance pools, or investment opportunities.
In other words, this is simply looking to create a more efficient form of an exclusionary system.
This will not enable people to fund new businesses, hedge against poor crop yields, or receive bridge loans until products can get to market. These are services that the underdeveloped world craves.
CBDC do not provide this.
The problem is not the form of money but, rather, the system itself.
3. Collapse In Government Confidence
Here is where the misunderstanding of money and how it works will bite governments.
Since the majority of people believe governments are in full control of it, the trust level becomes important.
Part of the reason for the rise in blockchain and cryptocurrency was the design of a new form of trust. Instead of trusting financial intermediaries, this new digital system was created to private trust in a trustless environment.
How does the trust in government appear to be going?
The reality is we are in a decade where the cycle is for confidence in government to collapse. Over the last few years, we saw a step back according to many. Unfortunately, we have not seen anything yet.
We have problems with bonds that are going to result in default. When countries or government entities face this, obligations promised are suddenly broken. This will be a major blow to whatever trust these entities (and people) have.
When that happens, do you think people are going to turn to the monetary system being promoted? If given a choice, what do you think the majority of people will opt for?
Take this beyond a countries national borders. Who is going to utilize the currency outside a specific country? Do you think companies conducting international trade are going to want anything to do with those currencies?
The answer is no. Once again, merchants and businesses are the ones who determine the currency used. Like politicians, these people operate in their own best interest. The choice of currency to operate in comes down to many variables, none of which include "because a government said so".
In Conclusion
CBDC around the world will become a reality. Governments are going to do all they can to stay relevant. There are a number of factors working against them but it does not mean they will not try.
This will likely be tied to some universal basic income. If the view of technology, especially artificial intelligence, is true, then politicians will need to do something to offset the job loss due to the transition to a new system.
In the end, it will fail. CBDC are simply a bad form of money when people will have other options. The simply premise is that we are moving into a world of networks. This means the base system is more important than geographic region.
It is something governments will not be able to combat.