Two weeks ago the Deputy Governor of the Bank of England Sir John Cunliffe
wrote the most sinister thing I have read in a long while. He said this:“giving your children pocket money but programming the money so that it couldn’t be used for sweets.”
This was in the context of CBDC
s. Let me explain what that is and why this statement is terrifying.Cryptocurrencies
such as Bitcoin
are gaining prominence. In April the total market capitalisation exceeded two trillion US dollars. Crucially for governments and central banks, that is an inordinate amount of money sitting outside traditional finance systems and the regulatory frameworks governments impose upon them.
Cryptocurrencies are evolving. Right now they are used primarily as an asset rather than as a currency because of the time and cost of processing the transactions of the underlying technology, blockchain
. With Bitcoin for instance, transferring funds from one place to another can take up to an hour which is okay if you're buying cocaine from the darknet but not useful if you're buying a coffee in a cafe.
But Bitcoin is old tech. Later generations of the blockchain tech can process thousands of transactions per second, almost on-par with the processing throughput of the credit card companies, which means they ARE
suitable for everyday transactions and therefore, viable replacements for fiat currency.
A democratised digital currency like this is nirvana for libertarians and anarchists but the worst nightmare for nation states. A central bank cannot for instance, set monetary policy when the populace is using a different currency.
So what to do? The answer is to co-opt and regulate, which is where CBDCs come in.
Like most central banks, the Bank of England realises digital currencies are inevitable so their plan is to introduce alternatives. Alternatives they themselves control: Central Bank Digital Currencies.
CBDCs are just like any other cryptocurrency in that they can be programmed, as Sir John points out. From the point of view of the nation state this is fantastic: improved efficiencies in the financial system creating economic benefit, whilst enhancing the controls nations traditionally exert over fiat currency.
From the point of view of the populace however, this is totalitarian micro-control over every aspect of our financial lives. When every transaction is recorded and the state can manipulate the behaviour of the currency with immediate effect, the people are reduced to mere economic units whose financial behaviours are strictly monitored, malleable and controlled.
Imagine a world where the government decides that tax on Chilean wine will increased 5% and that tax is applied immediately. With CBDCs, two seconds after the government imposed the tax you'd be forced, seamlessly, to pay it at the supermarket. Imagine the government decides the economy requires stimulation so to encourage spending, your pay-cheque will lose 20% of its value if you don't spend it within a month. Imagine being automatically sent to the bottom of the queue for diabetes treatment because the health system has determined you spent too much on Coca-Cola over the last ten years.
The possibilities control of currency at this granularity afford are endless and most of them aren't good.
Alongside the introduction of CBDCs will be an initiative to hobble the competition, which I expect to commence soon. Governments will endeavour to regulate cryptocurrencies out of existence and are likely to impose stiff penalties upon those who trade in them.
In the meantime please keep in mind that despite the fluffy paternalistic authoritarianism espoused by technocrats like Sir John, no-one should have the right to tell you how many sweets you can buy with your own money except your mum.
Because she has your best interests at heart, unlike Sir John.
-SRA. Auckland, 20/vi 2021