What are CBDCs?
When Bitcoin was born in 2009, it was a thing of "geeks" and "cypherpunks". Very few people knew about it, and almost no one bet on it. That is, until it began to grow and its price began to increase parabolically. From that moment on, many went from ignoring it to showing great interest in it. This situation led to the birth of a new phenomenon: the cryptocurrency ecosystem. This brought with it tens of thousands of cryptocurrencies, many of them interesting but most of them without any value proposition.
It should not be forgotten that the main purpose for which Bitcoin was created is to replace fiat money, i.e. the institutional money of banks. The IMF and central banks are aware of the strength of Bitcoin and how deficient their money is. Therefore, in their eagerness to continue to maintain their power at all costs, they have tried to create something that can limit Bitcoin's power and also allow them to maintain their monopoly on this "modern slavery". Their solution to this is the CBDC (Central Bank Digital Currency).
With this, in theory, they seek to move towards a future of digital money where some financial and economic limitations of the current fiat money disappear. But all this, while maintaining control of the world's economy.
Governments, with their faithful lackeys, the media, along with central banks, want to put an end to Bitcoin, which brings to light every day its embarrassments, putting at risk their monopoly.
But what are CBDCs really, do they use blockchain, what are their pros and cons, and do they exist today? Find out the answers to these and other questions below.
What are CBDCs?
CBDCs are digital currencies issued by central banks and serve as an alternative to cash. They are regulated by a specific state or community of states and therefore have legal tender value in that/those nation(s).
CBDCs are a way of "washing the face" of fiat money, seeking, by copying some of the functionalities of cryptocurrencies, to respond to some of the needs of today's world. But of course, what they don't tell you is that in reality they are a mechanism of centralized control of money. So that nothing escapes their control?
What differentiates a CBDC from a cryptocurrency?
CBDCs are NOT cryptocurrencies. And of course they are nothing like Bitcoin. If anything, they could be assimilated to stablecoins, since their value is linked to the value of a legal tender (fiat money).
The concept of CBDCs is not new, just like that of cryptocurrencies. The first mention of a CBDC was made in 1985, by James Tobin, in his paper "Financial innovation and deregulation in perspective". Since then, the idea of creating CBDCs was always in the air, forgotten but latent, due to the sense of control that banks had at the time, with the traditional model of money.
However, the birth of the Internet, the arrival of digital payment systems, and especially with the arrival of cryptocurrencies, led these entities to rethink new methods of maintaining control of the world, through the control and manipulation of money. This led to the study and issuance of the first CBDCs in the world.
Characteristics of CBDCs
Among the characteristics of CBDCs we can highlight:
It is possible to exchange it between peers, without the need for knowledge of the issuer.
Its acceptance is universal, a fact that is supported by its legal framework granted by the State and the issuing institution. In this sense, its possession and use by any citizen is legal.
It is anonymous and private (only in theory...).
Its possession does not accrue interest.
But of course, this is only the theory. But there are things that I already tell you that cannot be fulfilled. Let's look at it in parts:
Yes, it is possible to exchange it between peers. But such movement is of real time knowledge of the bank. The structure that controls the currency is under the management of the banks, and they, therefore, will know at all times that you have made a transaction, the amount, to whom and even from where you have done it.
It is not open access, the banks decide who is given access and who is not.
Many CBDCs seek to achieve "controlled anonymity" ..... Wait a minute, is anyone really going to believe that a digital currency issued by a central bank is going to be anonymous? That is to say, assuming that in order to have access to these currencies, which on the other hand will be mandatory, you will have to have an "official wallet" of the government to which you will have access, surely, through your ID card (or even associated with the identification chip of this), any movement (transaction) that is made, will be fully recorded, accessible and visible to the centralized regulatory bodies of the government. So I can confirm that the CBDC will NOT BE ANONYMOUS.
As for the interest, if I can confirm it is true. The State and the banks will never allow you to amass a fortune (remember I talked about modern slavery before). And even less doing "staking" with their own currency. Are we crazy or what .......?. Another issue would be if there were higher political or economic interests. In that case interest could be triggered as a form of disguised inflation. Although well, once they already have absolute control of the money, these interests can make them positive or negative and penalize you as they please if you see that you can prosper a little ...
As you can see, this is a technology and a type of money with which you have to be careful. Because while CBDCs can help in some ways, these same advantages can become a terrible double-edged sword in terms of freedom and privacy.
How do CBDCs work?
The mechanics of how each CBDC works depends a lot on the technology used to create it, as well as the needs it is intended to meet. Not all of them are created in the same way, nor will they have the same characteristics.
Many central banks are currently showing interest in blockchain technology, especially the DLT (Distributed Ledger Technology) variant, for their development. They are betting on these technologies to minimize the risk of developing monetary systems that work only in digital environments.
Blockchain and DLT are two technological solutions that simplify the construction of interoperability systems with other currencies. They are currently working on integrations within cryptocurrencies that allow instant exchange between cryptocurrencies with different consensuses. But they could also benefit from the use of smart contracts to create or deploy different solutions.
Linux Foundation's HyperLedger is an interesting project that could boost CBDCs. Currently, companies such as Intel, Oracle and IBM are among those collaborating in the development of HyperLedger. Fabric, Sawtooth and Burrow are three projects based on HyperLedger that allow to bring blockchain technology to different spaces, such as the banking system.
Objective of the CBDC
The following are the main objectives of the CBDC.
Usability
The aim of this type of currencies is to make transactions much faster and easier. Being able to make instant payments or instant transfers are some of the current objectives.
Replacing cash
One of the main drawbacks of cash for a government or central bank is its production, transportation, maintenance and collection. In addition, banknotes and coins suffer from deterioration, and they can also be a mechanism for disease transmission (unintentionally, of course).
The idea is to develop a digital currency that is accessible to as many users as possible. The characteristic of universality must be met, although this may be very difficult to achieve in practice.
Limiting the social impact of banking crises
The aim is to ensure that banking crises do not exist, or at least to reduce their frequency and social impact. Digital currencies of this type can offer users deposits to decouple the provision of payments from the provision of credit.
Reducing crime
One of the drawbacks of fiat money in physical form is that it can be used for illicit activities. Digital currencies issued by a competent body eliminate or minimize this possibility. There is a record of all transactions and the origin and destination of transactions can be traced. Thus these illicit activities will be exclusive to these "competent" bodies.....
This could reduce or eliminate many criminal activities such as drug trafficking or prostitution. But above all, it could suppress corruption among businessmen and politicians or the underground economy.
Global adoption of CBDC
According to data recently published by the Bank for International Settlements (BIS), 9 out of 10 central banks (81 of them) in the world are currently developing their CBDC, or are already at an advanced stage of experimentation. And most of them seem destined to go into operation.
One of the pioneers was the case of Nigeria, which in October 2021 launched the e-Naira (the naira is the legal tender in the country), and in three months recorded 35,000 transactions with 700,000 thousand downloads of the digital wallet in more than 150 countries around the world. There is no exchange rate between e-Naira and Naira: they are exactly the same currency, but in different formats.
Different views of China and the US on CBDCs
The challenge between the United States and China regarding CBDCs involves a strong political tension. On the one hand, Beijing is testing e-yuan in twelve different cities, and was among the first countries to operate in the creation of a digital currency, having already favored for years the digitization of payment systems through platforms such as WeChat and Alipay. On the other hand, the United States, on the other hand, is very cautious about it, fearful of making false steps that could upset the banks or lose some steps and provoke a currency crisis. Some experts theorize that China, by facilitating international electronic yuan payments, could replace the U.S. dollar as the currency for world trade.
Caribbean countries are also at very advanced stages in launching their CBDCs: examples include Jamaica and the Eastern Caribbean Currency Union where their digital currencies are scheduled to see the light of day in the coming months.
The ECB and the Digital EURO
In Europe , Ukraine was the first country to launch a CBDC ( e-hryvnia ) test project in December 2021. Although as you can understand, everything is currently on hold due to the Russian invasion. This is followed by Sweden, where the debate is very heated and positions very polarized on the usefulness or not of CBDC: major privacy risks are posed to citizens. In the UK, a report by the House of Lords Economic Affairs Committee presented CBDCs as "a solution in search of a problem", thus underlining the lack of justification to this alleged need to have a public digital currency when there are so many private ones.
For its part, the European Union is also working on its ECB project: EUROChain. That is the name given to the digital currency being developed by the European Central Bank (ECB). Said project was released publicly in December 2019 the document "Exploring anonymity in central banck digital currencies".
The published paper talks about Corda R3 technology, a private DLT technology, as the basis of the new CBDC for Europe. It is currently in Proof of Concept (PoC) phase and in principle wants to guarantee the anonymity of transactions. What is not very clear is how the anonymity of transactions will be guaranteed and the "know your customer (KYC)" and "anti-money laundering (AML)" processors will be maintained. If they pull it off, it would be like getting to drink and blow at the same time....
It is expected that in 2023 the Parliament will pass a law to start imagining its forms. Undoubtedly, a greater involvement of civil society, so far practically non-existent, in the process of reflection on the digital euro would be necessary.
CONCLUSIONS
To conclude, I would like to leave my thoughts on CBDCs: these hybrids between cryptocurrencies and fiat money are the response of countries (and higher spheres if any...) concerned about the emergence, growth and dominance of free cryptocurrencies, which can bring abundance and freedom to those who can/will use them. That is why they are desperately seeking mechanisms and ruses of control and exploitation to avoid at all costs the loss of their desired power and economic and financial domination of the world.
They are the last attempt of the institutions to stay alive in times in which society already rejects them massively.
Moreover, CBDCs are a form of money that will help them, even more, through their manipulation, to achieve different political, economic, geopolitical and geoeconomic goals around the world, and where the losses of freedom and privacy, due to the massive spying on citizens will reach levels never seen before. A promising future...
