While some champion CBDCs as a financial revolution, many view them as a threat to privacy and freedom. Crypto.news spoke with experts to shed light on this complex debate.

Digital currencies backed by central banks, or CBDCs, could completely change how we use money. They could make payments quicker, less costly, and more effective both within countries and across borders. By cutting down on the expenses tied to making, sharing, and protecting physical cash, CBDCs could help economies work better and greatly improve how banking systems operate.

However, many experts believe that the advantages of such a system are eclipsed by potential misuse and societal consequences.

Are the benefits worth it?

Neel Kashkari, the president of the Federal Reserve Bank of Minneapolis, questioned the need for CBDCs, failing to identify the unique problem this innovation claims to solve. 

“I keep asking anybody to explain to me what problem [a CBDC] is solving. I can send anybody in this room $5 using Venmo right now. So what is it that CBDC can do that Venmo can’t do?” he said at the Minnesota Transportation Conference and Expo in May 2023.

https://twitter.com/EconWithNick/status/1563159397450526720

Financial inclusion is often cited as a major benefit of CBDCs. However, Nicholas Anthony, Policy Analyst at the Cato Institute’s Center for Monetary and Financial Alternatives, challenges this notion.

In his exclusive comment to crypto.news, he asserts,

“In the US, the Federal Deposit Insurance Corporation (FDIC) has found that Americans are often outside of the financial system because they do not trust banks and want to preserve their privacy—these will be significant barriers to CBDC adoption given the risks they present to privacy.”

Anthony further doubts the claimed efficiency of CBDCs, considering the existing advancements in payment systems around the world.

He quotes Philip Lowe, Governor of Reserve Bank of Australia, who said, “To date, though, we have not seen a strong public policy case to move [toward a CBDC], especially given Australia’s efficient, fast and convenient electronic payments system.”

Let’s analyze some key risk factors that stand in the way of CBDCs.

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“Doom for privacy“

When it comes to CBDCs, there is a significant privacy concern from a technical standpoint. Unlike traditional cash transactions, where central banks cannot trace the users of physical currency, CBDC transactions could be visible on a blockchain or a similar digital ledger. This means that the central bank would have complete control over monitoring and enforcing rules and regulations related to CBDC usage.

As Agustín Carstens, General Manager of the Bank of International Settlements (BIS), remarked, central banks cannot trace who’s using a $100 bill or a 1,000 peso note today. However, with a CBDC, the central bank will have complete control over the rules and regulations determining its use. 

Source : [CBDC: gateway to state control or monetary innovation?](crypto.news/cbdcs-gateway-to-state-control-or-monetary-innovation/) by Ankish Jain - crypto.news by Ankish Jain / August 01, 2023