When Bitcoin grew from an experimental technology to a competitive currency, Central Banks started thinking about the further fate of fiat money and the traditional financial system in general. And since cryptocurrencies’ reality is impossible to deny anymore, they have nothing left to do but create their own digital money.
Over the past several years, several Central Banks have been working on creating digital national currencies. CBDC, or Central Bank Digital Currency, – this is how this new type of digital money is called; some have already been launched in the Caribbean and Nigeria, some are being tested in China, some are preparing for a launch in Hong Kong, Thailand, Venezuela, and Ghana, while the Bank of America is considering it inevitable to launch a digital USD in the next decade.
The RESERVEUM Analytical Group is working hard on creating a protocol for a fair currency, and in this article, we will explain why CBDC cannot become one.
What Does FED Need the Digital Dollar For?
When it comes the usefulness of implementing the digital dollar, FED is coming up with a number of official reasons:
- an opportunity to increase the transaction speed, including international ones;
- an opportunity to make money transfers safer;
- making financial services more accessible;
- lowering credit risks and liquidity risks.
As all these reasons seem quite important, still, if we look closer we can see they are all made up and unjustified. Financial companies and authorities have been working constantly on speeding transactions and making them safe enough with the help of modern technologies. It is at work now already, without all those digital currencies.
Accessibility to financial services is a problem long since solved too. With the help of the government, many countries have involved millions of their citizens in the financial system.
Speaking of the risks of financial instability, implementing the digital dollar will only make them grow. It is especially dangerous for the developing countries which may suffer from the capital flight to the digital currencies of the developed countries.
From what we know, the FED’s reasoning in favour of the digital dollar looks more like a justification, a cover of the true reasons which make the Federal Reserve strive to join the crypto industry.
To have a better understanding of why we are so sceptical about FED’s goals and plans, read our article called “FED – the Structure of the World’s Biggest Central Bank”.
What are the disadvantages of CBDC?
- Centralisation. The crucial concept of any cryptocurrency is the lack of one control level. It helps protect the money from emission abuse and its main consequence, inflation. But if CBDC is issued and controlled by a Central Bank, what is the difference between that and the conventional money in e-wallets and plastic cards?
- Total Control. As far as the money system is from being perfect, we, its participants, are at least sure that our money belongs to us. The Central Bank is only responsible for the money emission; after the money flow is distributed, the flows are uncontrollable. But imagine, a part of your earnings is sent to a wallet managed by the government blockchain. In fact, it would mean you have no control over your money. From this money, the system may withhold taxes and utility bills payments, it may also freeze the account in case of a financial crisis, or ban savings and fine wallet owners using the remaining balance, let alone every transaction you make would be tracked.
- Serious Blow to Business. If even a person needs their privacy with money and doesn’t want to report every transaction, imagine the problems it may cause for businesses. It is no secret that every company may once in a while try evading its taxes if it wants to develop, not feed the system. But if all the processes and every transaction is followed and written down, it would be extremely hard to find the money for healthy development.
- Cyber Security. As you may know, crypto projects are quite often prone to hacker attacks; and it’s not only small start-ups under attack but even bigger exchanges. This means that any technology has a weak spot, and any system can be hacked. Concerning government cryptocurrencies, not only private hackers are dangerous, but also attacks by other countries.
- Uncontrolled Emission. Since for every government, CBDC is a new type of printing machine, it will inevitably lead to a higher money supply. Even if blockchain is transparent for all of its users, no one can stop the government from making fake wallets and redirecting huge sums of money there under cover of social projects and other typical excuses. Moreover, smart contracts enable their users to destroy extra tokens; Central Banks may use this opportunity to keep the money supply seemingly low. But the economy will probably react to any new emission with a new coil of inflation, whatever were the nice figures in the official reports.
Read more about uncontrolled money emission results in our article “Hyperinflation: 5 examples from the history”.
How CBDCs Will Affect the Money System
All that can lead us to a conclusion that CBDC for Central Banks is just a new form with the old contents. Uncontrolled emission, government money laundering, and new opportunities for money flow control are the goals that FED is after while working on their digital dollar.
If FED reaches its goals, everyone is affected with lower income, inflation and financial dependence.
CBDC is bearing huge risks for the financial system in general, but Central Banks refuse to acknowledge that. Digital currencies are viewed as new plastic cards, even though this technology is much more complicated.
Which Money is More Effective than CBDC
For money to be effective, it should be:
- fully decentralised and run by an algorithm, a smart contract. It fully eliminates any influence from third parties or authorities on such important decisions as emission and coins burning;
- backed by a real asset that has some real value, like energy;
- transparent for all the system users, a condition that blockchain can fill easily as long as all users have equal rights;
- issued in the right amount for the production volumes, with no excess or deficit.
It may seem a wild fantasy, but the Reserveum team keeps working on creating the currency of the future. Thank you for your interest to our project and for joining it! We receive wonderful ideas and implement the best ones. This currency should become the basis of a thriving economy, so it is important that its future users took part in creating it. We know our own needs better, and we really hope that we manage to create a currency that would free the economy of all the parasites like FED that we are fed up with; all they do is just fill their own pockets using our money.
According to the analysis group findings: reserveum.org