On 10 April, the International Monetary Fund (“IMF”) published the ‘IMF Approach to Central Bank Digital Currency Capacity Development’. It outlines the IMF’s multi-year strategy for aiding central bank digital currency (“CBDC”) rollouts, including the development of a living ‘CBDC Handbook’ for monetary authorities to follow.
As it develops, and includes more details, chapters 8–11 will be of particular interest to us as they relate to the centralised control over our lives using CBDCs that we, the consumers, are most concerned about.
Chapter 8, for example, “will identify design choices, such as operating model, limits in holding, programmability, interest-bearing, and degree of centralisation.” And Chapter 11 “will consider the trade-off between data use and privacy protection,” including “what data are generated by CBDC transactions and which institutions might have access to it.”
Last week, IMF Deputy Director Monetary and Capital Markets Department, Dong He, briefly mentioned at a seminar on CBDCs the programmability of CBDCs. “It can be used as a fiscal tool; it can be used for the Internet of Things.” But he doesn’t go into any detail as to what “programmability” means or what effects it has on consumers.
Watch He’s presentation at the ‘Asia Pacific Regional Seminar on Central Bank Digital Currency’ from timestamp 12:54 in the video HERE.
Alexander Lee of the US Federal Reserve wrote in June 2021, the term “programmable money” remains ill-defined. Lee differentiates between “programmable money” and “programmability.”
He defines “programmability” as the “mechanism for specifying the automated behaviour of a digital form of money through a computer program.” And he identifies two components of “programmable money”: a digital form of money and programmability. However, Lee warns, “It is not clear whether these components alone are sufficient for a definition, given that various combinations of similar technology for payments automation have existed for decades.”
There have been many claims, for example in a report by the Deutsche Bundesbank, that adding programmability to a CBDC could bring a plethora of economic benefits. However, The FinReg Blognoted, many of the claimed benefits either already exist or could be developed within existing systems.
The SEACEN Centre described programmable money as money with constraints. “It seems to be based on the notion that since money is already digital and exists as records on computers at commercial and/or at central banks, then it is programmable.” You can have programmable central bank money, programmable commercial bank money, programmable e-money (sometimes called stablecoins) and programmable any type of money.
Covid-19 and the ensuing unprecedented economic stimulus seem to have created a mini force towards programmable money. As noted above, programmable money is money with constraints. An analogy is food stamps, where recipients are given coupons, the equivalent of money, which can be spent only on food ‒ not on alcohol, betting on horses, lottery tickets or anything else. In modern guise, these “food stamps” are digitised tokens transacted on a blockchain platform with smart contracts.
Finextra identified the risks of CBDCs and highlighted the risks of connecting CBDCs to digital identities:
CBDC pose a combination of risks to consumers – financial, economic and human rights that are potentially severe if a CBDC is designed badly or with bad intent.
Human Rights Risks
If designed inappropriately, CBDCs have the potential to be used as tools of surveillance and control by governments.
Every transaction is recordable and any authority with access to the CBDC ledger could see all transactions.
They could also control individuals through the ledger – such as putting expiry dates on their CBDC, limiting how much they can hold, varying interest rates and prices depending on who they are, preventing purchases and automatically deducting fines.
The combination of digital identity and CBDC is also a big risk. Access and addressability are needed for digital payments but these are different to digital identity. In a world of programmable money, digital identity can go beyond just enabling access to your funds. Use of those funds can be made conditional on attributes of your digital identity. If those funds are in CBDC, then the central bank and by implication, the government can control directly how you spend and receive money.
Be wary of anyone advocating for digital identity to be connected to CBDC – while digital identity is needed to find fraudsters, money launderers and other criminals, there is no monetary reason to combine CBDC with digital identity.
Yet, connecting CBDCs to digital identities seems to be exactly what Central Bankers are proposing.
Connecting CBDCs to Digital IDs
On 27 September, France’s central bank — the Banque de France — held an international roundtable in which central bankers from the US and the EU confirmed that digital dollars and euros, should they go forward, would not be anonymous.
Federal Reserve Chair Jerome Powell said that concerning an American CBDC rollout one of the characteristics is that “[the CBDC] is identity verified, so it would not be anonymous. It would not be an anonymous bearer instrument.”
Christine Lagarde, President of the European Central Bank, said: “In terms of anonymity, there would not be complete anonymity as there is with bank notes.”
In other words, CBDCs would require some form of digital identity scheme. And what is the purpose of a digital identity? The World Economic Forum has clearly stated how they envision it:
The following is extracted from the article ‘IMF is creating a ‘CBDC Handbook’ for central bank, govt rollouts’ published by The Sociable.
A digital identity encompasses everything that makes you unique in the digital realm, and it is a system that can consolidate all of your most personal intimate data, including which websites you visit, your online purchases, health records, financial accounts and who you’re friends with on social media.
It can be used to determine what products, services, and information are available to you, and it can certainly be used by public and private entities to deny you that access.
Ultimately, a CBDC linked with digital ID could allow governments and corporations to put permissions on what you can buy with your own money, including expiration dates on when you can spend it.
It is a system ripe for total surveillance and control over many aspects of society, and it paves the way for an authoritarian system of social credit that incentives, coerces, and otherwise manipulates citizen behaviour.
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