Central Bank Digital Currencies And Global Financial System

The Potential Orwellian Horror of Central Bank Digital Currencies

As citizens around the world are confronted with the severe curtailment of political, economic and cultural freedoms associated with COVID-19 risk mitigation strategies (e.g., lockdowns, mandatory vaccinations and/or vaccine passports), new risks to economic freedom and prosperity are quickly emerging which citizens must be aware of and remain vigilant about.

One of these risks which is developing with rapid pace are Central Bank Digital Currencies (CBDCs). According to a Bank of International Settlements (BIS) 2021 survey[1]:

• 86% of central banks are actively researching the potential for CBDCs;

• 60% were experimenting with CBDC associated technology; and

• 14% were deploying CBDC pilot projects.

The development of CBDCs potentially represents one of the largest changes to modern banking and finance (as well as the global financial system) in decades[2], even though, as noted by the BIS[3], the concept was proposed by American economist, James Tobin, in 1987[4].

CBDCs have been the subject of much speculation of late regarding their intent and implications within economic and financial circles (both mainstream as well as alternative circles). However, to date, they have generated little debate or scrutiny by the public-at-large.

This latter fact is rather astonishing given the potential scale of change to economic life that may result from the introduction of CBDCs.

Definition of CBDCs

Given the above explanation of the current structure of the modern fiat currency system, it is important to define what CBDCs are and what role they may play within this structure.

CBDCs are digital or virtual forms of physical cash represented through an electronic record or digital token that is issued and regulated by a country’s central monetary authority (i.e., its central bank)[7] via a centralised ledger.

CBDCs are centralised, which stand in stark contrast to privately-issued cryptocurrencies (such as Bitcoin) which are decentralised and unregulated.

CBDCs are not uniform and central banks have an immense range of legal, technical, operational and administrative design options to achieve their stated public policy objectives. Importantly, the policy intent of CBDCs will be neither uniform across jurisdictions nor static in time. Instead, they will tend to be a function of a country’s economic, political and social context.

As discussed in greater detail below, CBDCs can both co-exist and operate in parallel with both physical cash and privately-issued currency.

Thus, in assessing whether a proposed CBDC will, in net terms, improve or impair the function of a monetary system and broader economy, each CBDC will require individualised scrutiny and assessment.

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