When Bitcoin grew from an experimental technology into a competitive currency, central banks had to think about the future of fiat money and the traditional financial system as a whole. And since it is no longer possible to deny the reality of cryptocurrencies today, they have no choice but to create their own digital money.
Over the past few years, dozens of central banks have been working on the creation of digital national currencies. CBDC - central bank digital currency - this is how these new digital money are conventionally called, have already been launched in the Caribbean and Nigeria, are being tested in China, are preparing to launch in Hong Kong, Thailand, Venezuela and Ghana, and Bank of America deems the introduction of a digital dollar inevitable in the US this decade too.
Analytical group RESERVEUM actively works on the creation of fair currency protocol. Today we will see why CBDC cannot be considered one.
Why does the Fed need a digital dollar?
As for the motivation to introduce a digital dollar, the Fed gives a list of official reasons in its report:
· the ability to increase the speed of transfers, including international ones;
· the ability to make money transactions more secure;
· increasing the availability of financial services;
· reduction of credit risks and liquidity risks.
All these reasons seem significant, but if you look closely, their far-fetched ideology and groundlessness become obvious. Financial companies and government agencies are constantly working to speed up money transfer operations and provide them with sufficient security through modern technologies. It already works now, without digital currencies.
The availability of financial services for all segments of the population is also a long-standing problem. With the help of government subsidies in many countries, millions of new users are successfully involved in the financial system.
As for the risk of financial instability, it will only grow from the introduction of the digital dollar. This is especially dangerous for developing countries, which may be affected by the outflow of capital into the digital currencies of developed countries.
In our opinion, the Fed’s arguments in favor of the digital dollar seem more like an excuse, a cover for the true reasons why the Fed is so stubbornly seeking to join the crypto industry.
To understand our skepticism towards the FED’s actions, please read our article How to make your own algorithmic FED
What are the clear disadvantages of CBDC?
-
Centralization. The main concept of cryptocurrencies is the absence of a single control center. This protects the money from the abuse of emission and the main consequence - inflation. But if CBDCs are issued and managed by a central bank, how are they different from money in electronic wallets and plastic cards?
-
Total control. No matter how far from perfect the monetary system actually is, but we, as its participants, at the very least are sure that our money belong to us. The Central Bank is responsible only for the issue, and after the distribution of money, it no longer controls their flows. But imagine that part of your earnings will be sent to a wallet operated by a government blockchain. In fact, this will mean that you do not manage this money. The system can withhold taxes, utility bills from this amount, and it can also freeze the account in the event of a financial crisis, or impose a ban on savings and fine wallet owners for the account balance, not to mention the fact that every payment you make will be tracked.
-
Pressure on business. If it is important even for an individual to manage their money freely and not have to report every transaction, imagine what a problem this will create for a business. After all, it is no secret to anyone that avoiding the tax system is the norm for any company that wants to actively develop, as opposed to working for the system itself. But if all the processes, every operation of the company will be monitored and recorded, it will be impossible to release capital for development.
-
Cyber security. As you know, crypto projects often become victims of hacker, and not just some inexperienced startups, but large reputable exchanges too, get attacked by cyber criminals. This means that any technology has weaknesses, and any system can be hacked. In the case of the state cryptocurrency, the danger is not only private hackers, but also attacks from other states.
-
Uncontrolled emission. Since CBDC is a new printing press format for the state, this will inevitably lead to an increase in the money supply. Even if the blockchain is transparent to all users, nothing will prevent the state from creating fake wallets and transferring huge amounts of money to them disguised as social projects and regularly used masks. In addition, the smart contract provides for the ability to destroy excess tokens, and central banks can use this to externally maintain the money supply at an acceptable level. But the economy will still react to each new issue with a new jump in inflation, no matter how ideal the figures in official reports are.
To witness what an uncontrollable emission can lead to, please refer to our article Hyperinflation: 5 historic cases
How CBDC will affect the monetary system
From the aforementioned flaws, we can conclude that for central banks, CBDC is just a new form with an old content. Uncontrolled emission, laundering of public money, new opportunities for controlling cash flows - these are the main goals that the Fed is pursuing when working on the launch of a digital dollar.
If the Fed's goals are achieved, ordinary participants in the monetary system will experience such consequences as lower income levels, inflation, and financial dependence.
CBDC also carries huge risks for the financial system, although central banks do not want to admit them. Digital currencies are merely considered as new plastic cards, although this technology is much more complicated.
What money will be more effective than CBDC
For money to be effective, it must be:
· fully decentralized and controlled by an algorithm - a smart contract. This excludes the influence of some interested person or body on such important decisions as the issuance and burning of coins;
· secured by a real asset of utilitarian value, such as electricity;
· transparent for all participants in the system, which provides for blockchain technology, provided that all participants have equal rights;
· be produced in quantities corresponding to production volumes, without surpluses and shortages.
It may seem like a fantasy for now, but the Reserveum team relentlessly works on creating the ideal currency of the future. Thank you for showing interest in our project and taking part in it. We receive amazing ideas from you and integrate the best of them into development. This currency should become the basis of a prosperous economy, so it is important for us that its future users take part in its creation. We, as consumers, know our needs better, and we really hope that we can create a currency that frees the economy from such parasites as the Fed, who line their pockets at the expense of ordinary users of money.
No comments:
Post a Comment