The discovery of Bitcoin has changed the trajectory of monetary thought. And while Bitcoin is already here, the implications of its emergence are not very widely understood other than by a relatively small but constantly growing number of people worldwide. With BlackRock, the largest asset manager in the world, announcing that it will launch a private bitcoin trust for its clients, huge signals are being sent that crypto is becoming legitimate.
Central bankers and other monetary authorities are paying close attention to Bitcoin, as is made evident by the zeal to research and issue their alternatives called central bank digital currencies (CBDCs). Currently, governments and central banks are arguing that CBDCs are not meant to replace traditional notes and coins but are used to complement the existing alternatives and make things more “efficient,” as CBDCs argue to be the same as physical cash but in a digital format. Central banks worldwide want to issue digital cash to supercharge their service offering and ultimately have even more power over the financial system.
Removing the need for cash
CBDCs will eventually be introduced – in one form or another – during our lifetime as a complementary monetary good, but they will ultimately drive cash out by necessity. That is the only way to see it, as cash payments have considerable costs, and circulating notes limit the extent of the currently normalized unconventional monetary experiments (NIRP, ZIRP, etc.). However, CBDCs will introduce a new level of fogginess into the economic architecture as people will not hold fiat banknotes anymore but are ultimately subject to the whims of unelected bureaucrats. Virtually any participant in the CBDC architecture can be canceled anytime just by pressing a button on a computer.
While Bitcoin is not perfect, it is a different species compared to CBDCs. Whether you think Bitcoin is valuable or not, you have to admit that it’s something we humans have not encountered before. As Ralph Merkle pointed out in 2016, “Bitcoin is the first example of a new form of life.” Bitcoin is an open-source value transmission protocol, while CBDC is just the latest form of the so-called fiat standard. Professors Peter Bofinger and Thomas Haas argued last February that the current CBDC designs are not delivering the benefits they are claimed to deliver. Privately issued stablecoins could be considered more lucrative than digital cash issued by central banks.
Do the benefits outweigh the cons?
Advocates of CBDCs need to develop better arguments and find evidence to show, for example, how CBDCs will boost financial inclusion or bank the “unbanked” at scale. While financial inclusion might turn out to be the strongest argument in favor of CBDCs, there is a massive downside in terms of financial transparency, censorship, privacy, centralization, autonomy, and other fundamental rights in introducing CBDCs. At the moment, it’s hard to see sustainable benefits that would outweigh the enormous cons of introducing retail CBDCs.
CBDC as a form of bank reserves is not so controversial as retail CBDC, but from the global point of view, different countries and jurisdictions will choose very different approaches towards CBDCs, stablecoins, and crypto, and this all will affect the wellbeing and the future of the populace at large. As professors, Stephen Cecchetti and Kim Schoenholtz argued in an op-ed published last year by Vox.EU, “The most important innovations do not require universal [retail] CBDC and its inherent risks.”
On the other hand, Bitcoin is already making the world a better place for our generation and an infinite number of generations to come. The most crucial fact about Bitcoin is that nobody has ultimate control or authority over it, but this is not the case in CBDCs. Bitcoin is freedom.
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How Can Crypto and Central Bank Digital Currency (CBDCs) Help Communities
Source: Trends Pinoy
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