Countries are launching digital currencies to rival Bitcoin—and opening up new ways to snoop on their citizens in the process.
ILLUSTRATION BY DANIEL ZENDER
At first, it might have sounded like manna from heaven. Chinese authorities announced they would be distributing more than $1 million to a select number of citizens, as part of a test of its new currency: a digital yuan that could be easily spent almost anywhere. Reports out of China showed happy recipients using “digital wallets” to buy groceries with their free money and marveling at how “smooth and fast” the system worked.
But there was a hitch or two, pointing to the thorny complexities of this new foray into digital monetary policy. First, recipients of the digital yuan had only a couple of weeks to spend their money; otherwise, it would disappear as mysteriously as it had arrived. (The encouragement to spend is considered a way of ensuring the currency quickly enters the market.) And second, the experiment signaled a new advance in digital surveillance, in which the state could potentially track all financial transactions. Recipients got free money, but with a new degree of control attached.
Fifty-six central banks are now researching or developing some form of digital currency, according to the Bank for International Settlements. These new entries in the market pit tech moguls against central bankers against Bitcoin bulls—with consumers sidelined, as usual—and along the way, they’ve teed up a battle over sovereignty and monetary authority. The core questions here are about who controls what people get and how they spend it—and about tracking flows of money as never before. With digital currencies, economists and central bankers can coordinate monetary policy and welfare benefits in real time, instantly funneling money into the pockets of those who need it. But these plans also provide a feast of data for technocrats and surveillance-happy police. The risks that come with putting this kind of power in the hands of an authoritarian state bent on social control—or perhaps any state—seem to outweigh the benefits.
Cryptocurrencies, particularly Bitcoin, were developed to be free from the shackles of government, central banks, and mainstream financial institutions, which many cryptocurrency traders believe fuel corruption and contribute to inflation. “What is needed is an electronic payment system based on cryptographic proof instead of trust,” wrote Satoshi Nakamoto in his 2008 white paper laying out the Bitcoin protocol. “Transactions that are computationally impractical to reverse would protect sellers from fraud.”
The problems with this model have become apparent in the 11 years since Bitcoin first started trading on the open market, at cents on the dollar. Mining a digital currency involves sophisticated calculations that, by design, require huge amounts of computing power and energy. (Bitcoin mining now consumes more electricity than the entire country of Argentina.) And the concept of cryptographic trust hasn’t been all it’s cracked up to be; theft and fraud still occur.
For true believers, these concerns have been easy to shunt aside—especially when there’s the opportunity to strike it rich. The result is a surprisingly frothy cryptocurrency market built as much on hopeful speculation as it is on fears of inflation in places like Nigeria, Africa’s largest user of cryptocurrency. Governments have begun to see this cryptocurrency movement as a challenge to their own sovereignty and authority over monetary policy, as well as a channel for capital flight. Some, such as India, are going so far as to propose bans on mining. Others are trying to regulate the new currencies and bring them in line with the more mainstream banking system. And some countries have pushed forward with digital currencies of their own, or CBDCs, that will, with luck and regulatory pressure, replace cryptocurrency as the digital currencies of the future, providing quick, cheap, and easy digital transactions between practically any two parties. That is, if you believe the technocratic hype emanating from various wonks and some of the world’s finance ministries.
China, with its technical sophistication and sheer economic might, was pushing forward with its digital currency as early as 2014, but many countries began to take such proposals more seriously in June 2019, when Facebook caused a scare in economic ministries around the world by announcing plans for its own global cryptocurrency, Libra. While cryptocurrencies like Bitcoin had raised concerns for these governments, Facebook posed a threat of a different order, representing the emergence of a mostly unregulated, supranational monetary authority with the kind of global reach, capital, and technological sophistication that few companies, or governments, could match. That “frightened the central banks,” wrote David Gerard in his 2020 book, Libra Shrugged, causing some to resurrect old CBDC proposals.
China, for its part, had less to fear from Facebook than it did from two massive tech companies the country has incubated domestically. Alibaba and Tencent have cornered the Chinese digital payments market, collectively processing 90 percent of mobile transactions—and gathering all of the attendant data, a role the state would prefer to keep for itself. To stop that from happening, China seems to have decided it needs a viable CBDC. (Chinese authorities have also relied on a more traditional cocktail of intimidation and legal threats to rein in these companies, fueling speculation that they had sequestered Alibaba’s Jack Ma, one of the country’s richest and most popular entrepreneurs, when he disappeared mysteriously for several months last winter.)Be the most
informed person you know:
3 months for $5Subscribe
The United States doesn’t seem to have progressed beyond reviewing the literature about CBDCs. But in late February, U.S. Treasury Secretary Janet Yellen seemed bullish on the idea. “We do have a problem with financial inclusion,” she said, using a term that sometimes confuses financial empowerment with getting poor people to establish accounts with big banks. “Too many Americans really don’t have access to easy payment systems and to banking accounts. This is something that a digital dollar, a central bank digital currency, could help with.” But America’s digital banking infrastructure is already far too wrapped up in invasive financial surveillance. The solution isn’t a new digital currency that generates even more data for the government.
A calibrated rejection of CBDCs shouldn’t be considered an endorsement of crypto-currencies that exist in their own wildly volatile market. Monetary policy should instead be made more democratic, so that digital banking technologies are available to those who want them, without the attendant surveillance and social control (or the runaway speculation endemic to cryptocurrency). A new digital currency requires new privacy protections enshrined in law. In China, where citizens have few political rights, that’s unlikely to happen. But in the United States, we still have a chance not to screw this up.
Jacob Silverman @SilvermanJacob
Jacob Silverman is a staff writer at The New Republic and the author of Terms of Service: Social Media and the Price of Constant Connection.
- Here’s the Bitcoin and Ethereum link that is likely to offer higher returns on these alts
- Luongo: Cryptos “Are The Right Tool To Call Bull$hit On Central Banks”
- Tron, Chainlink, VeChain Price Analysis: 30 April
- Cryptocurrencies Are the Next Frontier for the Surveillance State
- Dollar Drop, Crypto Pop Reflects “Crazy People” Running The System
The Pandora’s Box Of Fed’s Digital Currency Will Ignite An “Inflationary Conflagration”
We most recently described the Fed’s stealthy plan to deposit digital dollars to “each American” during the next crisis as a unprecedented monetary overhaul, but…Read More
Citigroup Hit With $400 Million Fine Over AML Failures That Led To Mike Corbat’s Downfall
The Comptroller of the Currency has finally handed down its punishment for the compliance failures that helped bring about an end to the tenure of…Read More
World’s Top Oil Trader Is Now A Used Car Salesman
Vitol Group, the world’s largest independent oil-trading firm, has been startled by the prospects of peak oil demand as it must diversify operations today to…Read More
De-Dollarization Trend Remains Intact
Global de-dollarization resumed in the second quarter according to data recently released by the International Monetary Fund (IMF). While the dollar share of global reserves increased in the…Read More
The SEC Is Making Deutsche’s CEO Personally Responsible For Bank’s Crimes
Since launching its last major international expansion push in the late 1990s, Deutsche Bank has become knonw – particularly over the last ten years –…Read More
“Digital Euro” as It Begins Experiments on Digital Currency Launch — the Banking Industry Is Very Concerned Digital Currency Will Kill the Banking Industry
As the world obsesses over Trump’s taxes or whether or not he is using oxygen during his covid hospitalization, the biggest overhaul in monetary and…Read More
Financialization & The Road To Zero, Part 1: The Evolution Of Commerce
This is Part 1 of a 4-part series. fi·nan·cial·i·za·tion /fəˌnanCHələˈzāSHən, fīˌnanCHələˈzāSHən/ noun The process by which financial institutions, markets et cetera increase in size and…Read More
Former Deutsche Bank Traders Convicted Of Fraud For Spoofing Precious Metals Between 2008 And 2013
Former Deutsche Bank AG traders Cedric Chanu and James Vorley were convicted for manipulating gold and silver prices on Friday after three days of deliberation…Read More
“An Extremely Dangerous Game” – Central Bankers ‘Extend & Pretend’ Has Increased Risk Of “Catastrophic Collapse”
In recent weeks, there has been a lot of talk about the role of the world’s central bankers going forward. With that in mind, now seems like…Read More
‘There Is No Monopoly Here:’ Tim Cook Welcomes Antitrust Investigation of Apple
Speaking at the Atlantic Festival recently, Apple CEO Tim Cook discussed the antitrust issues that the tech giant is facing amongst a number of other…Read More
Leave a Comment