It is always interesting to see a central bank, in this case, the Bank of England, recognizing the impact of bitcoin in the world of finance and FinTech. The report it published in March 2020: “Central Bank Digital Currency Opportunities, challenges and design”, begins with these words: “Fintech firms have begun to alter the market by offering new forms of money and new ways to pay with it.” Bitcoin is not named but specialists will appreciate the hint. A little further, it confesses that bitcoin and cryptocurrencies have forever changed the way we will think about money: “A CBDC could provide households and businesses with a new form of central bank money and a new way to make payments. It could ensure that the public has continued access to a risk-free form of money issued by the central bank, which may be especially important in the future as cash use declines and new forms of privately issued money become more widely used in payments.” One can criticize the actions of the Bank of England, but we must recognize that it is at the forefront of the changes that are disrupting the world and its economy. And, by the way, it is also a great ideological victory for the Austrian Theory of Money.
The European Central Bank (ECB) is also aware of the problems of monetary sovereignty in the EU zone that bitcoin and the private coins from Facebook or Google could cause. The head of the ECB, Christine Lagarde, in a recent interview, actually a prank by Russian comedians, revealed astonishing information about CBDC e-Euro
A world where you must now count with bitcoin and crypto
History, like the evolution of species, has experienced periods of acceleration and, as Mark Carney, the governor of the Bank of England, points out: “We are in the middle of a revolution in payments”, and what he proposes is a CBDC which could provide everyone (households and businesses) with a new form of electronic money and a new way to make payments.
But this new form of money brings no revolution; on the contrary, it threatens to lock us into a world where cash — and the freedom to spend without being controlled — have disappeared. To illustrate what we are saying, let’s compare this possible new form of money to the good old bitcoin.
But before we start, remember that the term: “digital currency”, is a little vague or even misused. Indeed, it is most often used to describe cryptocurrencies but to take a closer look, fiat money is nearly entirely “digital”. Indeed, the amount of money that is in circulation in physical form (notes and coins) is usually less than 10% of the overall amount of money that is being used in the economy. Thus, less than 10% is physical and 90% of is digital.
So, we’ve got digital currencies and… digital currencies
What sets them apart? The difference is that digital currencies such as euros, yens, dollars, etc., use databases.
The amount of money you have in your bank account is stored in the databases of both central bank’s and various other regional investments and retail banks.
And these databases are centralized. We now understand that the so-called revolution led by central banks is twofold; firstly, it is pure marketing; secondly, it is only created for an internal purpose. They want to change relational databases with distributed ledger technology, that’s all.
“Everything needs to change, so everything can stay the same”.
And think again, these technological supports used by central banks, DLTs, private or permissioned blockchains, are also centralized. They may be less centralized than the relational databases, but they are far from being decentralized. It seems that this craze for DLTs is motivated by the need to disintermediate, save money and maximize the performance of legacy mechanisms unifying relational databases on fancy DLTs.
Going back to the title of this article, these CBDCs will not be open, borderless, neutral, censorship-resistant and immutable. Once implemented, they will not to bring freedom to the people. On the contrary, states, governments and central banks, want to get rid of the last 10% of cash money circulating in our economies and if you were to doubt it, I would simply point out that this international initiative is led by the Chinese central bank.
So, let’s look at the foundational pillars of an open public blockchain such as Bitcoin and let’s compare it with CBDCs.
Open, borderless, censorship-resistant and immutable blockchains
On an open, public blockchain, anyone can participate; you don’t need an authorization, nor a vetting. You can transact without asking for permission. Anyone can download the App from the Internet and initiate a transaction from anywhere in the system, which also means from anywhere in the world. This is possible with Bitcoin and other open public currencies. All this is beyond the reach of central banks because they need to control every transaction. How is this different from Swift? Well, Mark Carney will have a hard time answering this question; because it’s not really that different. A DLT controlled by a central bank might be faster and cheaper, that’s it. Remember, CBDCs are a technology change rather than a paradigm shift.
Bitcoin or other open public cryptocurrencies are completely borderless; CBDCs are not and can’t be. Their role is to be strictly restricted within a jurisdiction of a country. They may have gateways between countries, just like Swift but these bridges exist only to strengthen the control of banks on their currency.
Censorship-resistant means that with bitcoin you can send money to whatever address you like without fear of government or any other authority interference. In other words, transactions are propagated in the system regardless of the send recipient and no one must answer questions such as: who you are? Where are you sending your money? Why are you sending it? And what are you using this money for? It is just like net neutrality on the internet. Of course, central banks cannot allow this; they must apply the regulations on money laundering (AML), and counter terrorist finance laws, much more severe since the entry into force of the Patriot Act (26th October 2001). For example, helping a political dissident in Hong Kong, or Saudi Arabia will be impossible on a CBDC ledger as it will be heavily censored, and every single transaction can be reversed.
On a public ledger, every transaction is open to the scrutiny of everyone.
We all know that governments, bureaucracies and transnational corporations love secrecy as much as they hate your privacy.
What better for these organizations than the creation of CBDCs?
In the opposite case, on an open blockchain such as bitcoin, it is the government which will be monitored by you! But that’s not going to happen.
So, these two cryptocurrency types, CBDCs on the one hand, and peer-to-peer, open public coins such as bitcoin, Ethereum, ZCash, Monero, etc., on the other, don’t compete because they fulfil a completely different purpose. The former tends to limit your freedom and will be nearly identical to their digital, relational database version; the latter, gives you freedom, independence, financial empowerment and sovereignty. And as for Libra, since we just mentioned it (a digital currency controlled by corporations), it will be used to collect private data from you in order to market and sell it to advertisers (without giving you any compensation for your hard work since you produced it).
CBDCs protect you from terrorism and corporation’s coins.
We mentioned in our introduction that Christine Lagarde was pranked by some Russian trolls. She revealed that the creation of CBDC e-Euro will be decided in October 2023. The ECB is actively preparing the ground for a possible implementation. She added:
“The reason I'm personally convinced that 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. For instance, I don't know, the Chinese currency, the Russian currency, or dependent on a friendly currency but which is activated by a private corporate entity like you know Facebook or like Google or anybody else […] 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. So, we have to be ready.”
She then revealed that the real intentions of the ECB about the implementation of a CBDC is total control over our lives.
“We are considering whether for very small amounts, you know 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 credit cards that you can recharge in total anonymity.”
In conclusion, the entry into force of the CBDCs seems inevitable (It’s a matter of months); and even more so that the depression which threatens the world economy today will be accompanied by an in-depth restructuring of the financial system. Indeed, the future is bleak for commercial banks which will have to fear the aggressive actions of central banks and the IMF.
The advent of CBDCs can indeed allow central banks to offer a bank account to each citizen. In this case, the role of retail banks would be completely redundant. This idea seems preposterous, but it was launched by the Deputy Governor for monetary policies (Bank of England), M. Ben Broadent, in a speech given at The London School of Economics in March 2016:
“But it seems likely that a distributed ledger would make that process easier, opening up the balance sheet [of central banks] to a wider variety of financial firms. One might go further, giving access to non-financial firms, or perhaps even individual households. In the limit, a distributed ledger might mean that we could all of us hold such balances. If so, our accounts would no longer be a claim on commercial banks but, like banknotes, the liability of the central bank.”
This speech is remarkable for more than one reason because four years before the Economic Depression of 2020, it already anticipated the advent of a world threatened by hyperinflation and collapse of the banking system. He explains that in such circumstances, the central banks would be ready to take over from the commercial banks.