The Potential Dangers of Central Bank Digital Currencies: A Closer Look?
Several countries in Europe, including Sweden, France, and Germany, have been exploring the possibility of launching their own Central Bank Digital Currencies (CBDCs). In February 2021, the European Central Bank (ECB) launched a two-year investigation into the viability of a digital euro. However, concerns have been raised about the potential impact of a digital euro on the commercial banking system and the privacy of users.
In the United Kingdom, the Bank of England is also exploring the possibility of launching a digital version of the pound sterling. The bank has formed a task force to explore the benefits and risks of a CBDC and is expected to publish a discussion paper on the topic later in 2021. Additionally, the UK government has recently announced a new plan to regulate stablecoins, which are digital currencies pegged to fiat currencies or other assets. The plan aims to mitigate risks associated with stablecoins, such as money laundering and terrorist financing.
Recent developments suggest that CBDCs are likely to become an increasingly important part of the global financial system. However, it is important to carefully consider the potential risks and benefits of CBDCs and ensure that they are implemented in a way that maximizes their potential benefits while minimizing their potential harms.
One potential danger associated with CBDCs is the potential loss of privacy. As CBDCs would allow central banks to track every transaction made with the currency, there is a possibility of serious implications for privacy and personal autonomy. Governments could use this information to monitor and control citizens’ spending, limiting their ability to make purchases deemed “unhealthy” or “unnecessary.” This concern has been raised by privacy advocates and some members of the public.
Another potential danger associated with CBDCs is the potential for increased surveillance and control. As CBDCs would be entirely digital, governments and central banks would have the ability to freeze or seize funds at will. This could be used to crack down on dissent or to punish individuals for behavior deemed unacceptable by those in power. Additionally, because CBDCs would be entirely digital, they could be subject to cyber attacks, which could result in the loss of funds or other sensitive information.
Despite these potential risks, CBDCs could also offer significant benefits, such as increased financial inclusion, faster and more secure transactions, and reduced transaction costs. As such, policymakers must carefully consider the potential risks and benefits of CBDCs and ensure that they are implemented in a way that maximizes their potential benefits while minimizing their potential harms.