As Bitcoin surpasses $100,000, both investors and government authorities are showing increased interest in digital currency. The challenge lies in distinguishing between an independent currency designed to evade surveillance and control, and one created by a central bank to facilitate such oversight. A recent guide from the International Monetary Fund acknowledges the potential of cryptocurrency while cautioning against the risks associated with government dominance over financial mechanisms.
The opening chapter of the IMF handbook explores how central bank digital currencies (CBDC) could help maintain the relevance of government financial institutions. As cash usage declines in various regions due to digitalization, central banks are contemplating CBDC as a way to uphold trust in the monetary system. The handbook also discusses the potential benefits of CBDCs, such as enhancing financial inclusion in underdeveloped economies, facilitating direct government payments to citizens, and easing cross-border transactions.
The IMF and the central banks it represents view cryptocurrency as a pivotal development and seek to participate in this evolving landscape. However, the inherent conflict arises from the fact that central banks are governmental bodies, and their objectives may not always align with the needs of individuals seeking reliable payment methods. In essence, government officials often view their constituents as subjects to be monitored and controlled.
A section on data utilization and privacy protection in the handbook raises concerns about the potential for CBDC to collect and preserve a “digital trail” of personal information, including transaction histories, user demographics, and behavioral patterns. This contrasts sharply with the ethos of Bitcoin, where privacy is cherished by users seeking anonymity in their financial dealings. While CBDC proponents argue that data collection could enhance traceability and combat illicit activities, critics warn that it could erode privacy and foster a climate of state surveillance.
Furthermore, the ability to conduct transactions freely without external interference is a pressing issue for many individuals. Governments may seek to regulate or restrict certain transactions, such as those involving prohibited goods or donations to political adversaries. While private payment systems can also pose limitations, recent incidents like GoFundMe’s refusal to accept donations for specific causes highlight the risks of centralized control over financial transactions.
In summary, the evolving landscape of digital currency presents both opportunities and challenges, raising questions about the balance between governmental oversight and individual autonomy in financial matters.
Utilizing purchases of cigarettes, drug paraphernalia, some sexually oriented materials, and just about anything gun-related. People trying to make use of their own money hate such meddling. But for government officials, this is all a feature, not a bug. “Some may worry that the government or the central bank could use it to control or restrict payments users can make with CBDC, thereby undermining public trust in central bank money,” concede the IMF authors. Nevertheless, a separate chapter on capital flow management (CFM) discusses all the different ways CBDC can be manipulated to implement policy, and the data collection needed to do exactly that.
“Different types of CFMs require varying amounts of information,” they write. “For instance, prohibiting the purchase of more than 1 million dollars of foreign assets per transaction requires less information than prohibiting the purchase of 1 million dollars of foreign assets by the same person, each year, for a specific purpose.” Among CBDC characteristics, according to the handbook, is programmability that restricts where and how digital money can be used: “Several central banks have either launched or piloted CBDCs that have digital wallets with different caps on how much CBDC can be stored in them and how many transactions can be made within a specific period.” But they warn that “alternatives without such constraints, for instance, potentially unregulated crypto assets, could be seen as more attractive to some users.” Framed in dispassionate language, the IMF discussion of the potential benefits and risks of CBDC reads like a fulfillment of every warning about letting the government expand its control of this sector.
The Power To Record and Monitor Everyone’s Transactions “A government with the power to record and monitor everyone’s transactions is powerful enough to impose its own version of morality on those transactions,” Paul Jossey of the Competitive Enterprise Institute warned in 2022. “Curtailing them, banning them, stopping them, erasing them, denying the ability for a company or individual to send or receive funds for disfavored people or causes.” The same year, the U.K. House of Lords Economic Affairs Committee warned in a report that “the government might use a CBDC as an instrument for state surveillance.” In the U.S., the Federal Reserve remains on the fence about implementing a CBDC and says it is “committed to hearing a wide range of voices on these topics.”
Among the voices it has heard is that of the House of Representatives, which earlier this year voted to prohibit the Federal Reserve from issuing a CBDC. “My legislation ensures that the United States’ digital currency policy remains in the hands of the American people so that any development of digital money reflects our values of privacy, individual sovereignty, and free market competitiveness,” claimed Rep. Tom Emmer (R–Minn.). Unfortunately, the bill stalled in the Senate. And so, an important element of freedom remains up in the air as government officials around the world consider the temptations of digital
