As the global economy is increasingly becoming digitized, cashless payments are gaining momentum. A decentralized approach to finance is increasingly associated with financial inclusion and protecting the privacy of stakeholders.
Additionally, an increase in the number of payments and cross-border transactions has induced the probability of multiple risks within the global financial systems.
These increasing vulnerabilities within the financial systems have propelled the discussion for the central bank digital currencies (CBDC) entering the finance ecosphere globally.
However, the CBDC is likely to turn into a vicious cycle where governments might be taking actions that might be causing the economy to suffer at home. History has it, the world economies suffer when governments choose to act. On the contrary, if we can persuade mass adoption of digital currencies, we will be able to transcend this vicious cycle and give people freedom in the way they transact, exchange, and store value.
The conceptual adoption of CBDC as a potentially revolutionary force in the evolution of global financial transactions is further in congruence with an ingenious concept called “ownership economy.”
This altruistic framework for ownership economy is constituted of a steadfast and reliable mechanism that transfers value via the internet in real time. The philosophy of the ownership economy is further proliferated and publicized through the stringent data protection laws across the globe (such as GDPR), which prioritize individual privacy and sovereignty, and through the flourishing free markets.
So far, the argument for the evolution of central bank digital currencies seems pragmatic as they will formulate a trusted and easily accessible digital currency version that can be circulated and settled in the financial markets in real time.
CBDC: The Counterintuitive Proposition
While on a surface level, the CBDC appears to be the prime enabler for global leadership allowing them to level the playfield for an “ownership economy,” and towards enabling and augmenting the efficiency of financial markets across the globe. However, this is a counterintuitive proposition. The world can very easily face unanticipated, atrocious repercussions if, in our endeavors to furtherance, development, and demonstration of CBDC, something goes awry.
Before we think or scrutinize the repercussions, we must understand the two types of CBDC – wholesale and retail.
To enable real-time interbank payments and settlement, financial institutions tokenize their assets held at the Federal Reserve under the term “wholesale CBDC.”
A “retail CBDC” conceptually is a tokenized form of the dollar that customers might receive from either the Fed or their financial institution. Every time a person spends CBDC, the transaction is documented on a blockchain that the government controls.
Though it might seem a frantic concept to some, nothing can be riskier than creating a CBDC that is not open, permissionless, and private by sticking to a fabricated sense of urgency. Risks to privacy and security will be considered as a result of this conclusion. More generally, a CBDC will give the federal government power over every financial transaction if it does not mimic the fundamental principles of currency.
Right now, the entire globe is running in the rat race of CBDC, including the U.S. For instance, in the U.S. a retail CBDC is now being assessed by the Biden administration. The Federal Reserve, the Treasury, the White House, and others are desperately trying to keep up with their rivals in the mental, fugitive, non-discerning, and possibly a soft-power battle on CBDC research and development through a series of executive order directives. They also believe that the United States has lagged behind other countries like China in crypto development, though such thoughts seem lame, hypothetical, and non-discernible, considering the risks that could arise with running a mindless CBDC race.
Digital Currencies: The Making of Ultimate Global Pragmatic Solutions for Keeping up with a Cashless Economy with a Digitized Version of the Cash
The option of developing digital currency seems the most rational alternative for the countries rat racing for CBDC development.
The next several generations of the digital economy will begin when we create or support a digital version of our global currencies that increase transaction efficiency, widen financial inclusion, and uphold an individual’s sovereignty.
For instance, a recent White House report on a potential United States CBDC twists the idea of privacy by proposing that a retail CBDC that operates on a blockchain, is managed and programmed by the central bank, is mediated by financial institutions, and is the best way to uphold Americans’ right to financial privacy. Individuals’ financial transactions would be recorded on an immutable database under the supervision of authorized parties, such as the Fed, on a “permissioned,” identity-verified blockchain, with the capacity to track who is making what transactions.
Technology that is inherently aligned with our ideals will flourish if we allow it to, opening the door to a more equitable and open economic system where people have more control over their contributions. If we choose to compromise our principles, we run the possibility of emulating a digital despotism similar to that of China. Even if only the United States walks the trail, the process will tacitly encourage the rest of the world to compete in the rat race.
From deplorable instances like the trucker protests in Ottawa in February of last year, the world must learn well in time before history repeats itself. The Canadian government used the banks as a tool to stifle protests and freeze the accounts of its citizens. The deployment of China’s COVID tracking system to prohibit its citizens from accessing money in their bank accounts to halt a bank run is another such. We must move toward a cashless society, but we must never give up on decentralized money.
We must exercise patience, while allowing the private sector to develop, and innovate by learning from the myriad of financial freedom abuses that the internet economy has made possible across the globe.
Conclusion
We are on the verge of embarking on an era of a digital renaissance with the adoption of digital currencies globally where human interests and values will be at the epicenter of financial affairs.
The adoption of digital currencies will make it possible to pivot us towards an altruistic, “ownership economy,” in the true sense, rather than clinging to the flawed CBDC paradigm. This will be possible by leveraging the ability to innovate to make the financial markets and communications more efficient.
The development of policies that prioritize and defend human rights in privacy, individual autonomy, and free markets must go hand in hand with the birth of the internet era. Any person should be able to freely access and build upon the internet. The IoT infrastructure must be more resilient and secure, allowing technology to protect and advance human interests.
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