The sooner the average American becomes familiar with “central bank digital currencies,” the sooner we can determine the future of Uncle Sam.
A central bank digital currency or CBDC: If you or your family haven’t heard this term in casual conversation, it might become normative. Or maybe not. It depends on how we, the people, collectively respond to the driving motivation behind this new form of money. For starters, the US Federal Reserve System, along with public sector banks around the world, have been gradually hinting at the possibility of introducing CBDC.
A CBDC is an electronic or “digital” form of traditional money issued and governed by a country’s central bank; it is tied to the fiat currency of the national unit, such as the US dollar. A CBDC differs from other digital currencies or “cryptocurrencies” by operating under autonomous communities rather than a centralized system.
There is no shortage of media focused on financial services examining the various “benefits” of CBDC. According to the International Monetary Fund, a major financial agency of the United Nations based in Washington DC, the advantage of a centralized digital form of money can promote “financial inclusion” serving unbanked or underbanked populations and “drive to better access to money, increased efficiency in payments and, in turn, lower transaction costs.”
Create a targeted CBDC wellness payment
From October 10 to 16, the annual meeting between the International Monetary Fund (IMF) and the World Bank Group (WBG) took place in person in Washington DC.
Continuing the theme of financial inclusion, Deputy Managing Director Bo Li expressed that CBDC can be leveraged through “programmability”. This would allow government agencies and private sector actors to schedule a contract and “target precisely their support to those people who need support,” such as a welfare payment or food stamp.
Just so everyone is clear, Li reportedly worked at the People’s Bank of China before joining the IMF. So for this, how relevant are the IMF and the WBG, especially for the United States?
In fact, a report by the Bank for International Settlements (BIS) published in May shows that around 90 percent of the 81 central banks surveyed “are exploring CBDCs and more than half are developing them or doing specific experiments.” And to emphasize the global level of research and pilot testing around centralized digital currencies, a website called “CBDCTracker” provides updates and relevant news worldwide.
While the Federal Reserve “has not made any decisions on whether to pursue” a CBDC, it does state that “as a responsibility of the Federal Reserve, however, a CBDC would be the most secure digital asset available to the general public, without associated credit or liquidity risk”.
Similarly, the Bank of England (UK) is “looking carefully” at how CBDC might work for the general public, but “has not yet made a decision to introduce one”.
The European Central Bank (ECB) has been more open about its ambitions. A new report published (again) in May marks the beginning of the research phase of a two-year project from July 2021, with the aim of “developing a safe, efficient and accessible form of money from digital central bank”.
In fact, automated teller machines (ATMs) are in global decline. For example, Sweden could be heading towards a cashless society, as only 13% of the nation used cash in 2018 and only 11% of payments in a UK store in 2021 involved cash. Additionally, the market size of the U.S. ATM manufacturing industry has declined by about 5 percent annually over the past five years. That said, the ATM count increased by 3,000 in 2021, possibly due to the restart of machines that were disabled during the COVID-19 lockdown.
Navigate “rough waters” in economics using CBDC
IMF Managing Director Kristalina Georgieva decided to justify the CBDC by metaphorically viewing the currency as “a new fleet of ships”, designed to withstand the challenges of the global economy represented by an old ship in “troubled waters”. These ships representing CBDC would “take people on new journeys” by opening up new possibilities, and because central banks issue CBDC, “provide more confidence that the ships would move safely.”
But again, Georgieva didn’t seem to understand why not enough consumers, as they prefer, use existing alternatives such as digital “e-wallets” to mobile “smartphones” designed to store money. Georgieva researched:
“It’s a lack of trust in him [digital] payment service providers? Is it a preference for informality? Is it a difficulty to access services, or does it cost a little more for people for whom every penny counts? We need to understand this so we can make a proper, ahem, information provision that covers people: how not using cash is better for protecting against crime, and how using digital money can bypass payments to credit and that. , of course, improves financial inclusion.”How about “it’s a privacy preference” to have cash on hand or gold locked away in safe storage?
Protection of anonymity and privacy
Federal Reserve Chairman Jerome Powell told the Banque de France conference in late September that if CBDC is pursued, he would “seek to balance privacy protection with identity verification” and that “it would not be anonymous” like cryptocurrencies.
Christine Lagarde, president of the ECB, echoed a similar point at the conference, stating that with a digital euro currency, “there would not be complete anonymity as there is with … bank notes.” However, he later added: “There would be a limited level of disclosure and certainly not at the central bank level.”
All of the above raises the following question. Integrating CBDC will increase government scrutiny of our purchases and financial transactions, which could then be used to discriminate against or favor access to future credit cards or bank loans, or ultimately influence access to leisure services or employment opportunities?
The Biden administration’s reaction to CBDC
In early March, President Joe Biden signed a executive order calling for more research into the development of a US digital currency through the Federal Reserve. The order also highlighted the need for government oversight of cryptocurrencies, which, despite fluctuating popularity for investment purposes, have also been widely used for criminal activities such as money laundering. Unlike CBDC, one of the reported benefits of cryptocurrencies is decentralization. However, according to investopediathese transactions leave a digital trail that the Federal Bureau of Investigation can decipher.
Later that month, four Democratic representatives introduced a bill this would allow the US Treasury—as opposed to the Federal Reserve—to create and issue a digital dollar. In this case, the digital dollar would be “token-based” and held on a person’s card or phone. Therefore, losing this item with stored tokens is a total loss of funds.
ECASH Law (Electronic Currency and Secure Hardware Act) proposes that payments be functionally identical to cash and support anonymous peer-to-peer cryptocurrency transactions. In addition, the bill would not require payment processing intermediaries; therefore, transactions would be “instant” and processing fees would likely be reduced. see me But people concerned about their right to personal privacy, in how they choose to own, store and use their financial wealth, may want to really pay attention to CBDC developments.
Be prepared for the attempted incorporation of CBDC
Let’s make something really clear. According to the think tank Atlantic Council, 105 countries representing more than 95 percent of global GDP, are exploring a CBDC. Currently, 50 countries are in one advanced exploration phase, i.e. development, pilot or release. The United States is currently in a CBDC research phase. China, on the other hand, is currently in the pilot phase. Although the Red Dragon is too experiencing the rapid adoption of smartphone payments instead of credit or debit cards is a different story for Uncle Sam.
In fact, many Americans don’t trust major smartphone payments “apps” due to security concerns. Also, those over 50 are more likely to trust apps like PayPal, Venmo, Zelle and CashApp with their money. than their younger counterparts.
The credit and debit card system may be well established, and it’s faster to swipe a card than find the right payment app installed on a smartphone. Also, it’s probably a good idea to have an external card or, better yet, cash on hand, given the scenario of a lost, stolen, or malfunctioning smartphone.
But given the above, IMF Deputy Managing Director he commented that to The CBDC ecosystem doesn’t even require a smartphone and that these digital currencies can help those “with no internet access, no phone because CBDC can be stored on a store value card.”
In other words, there is no intention to shy away from countries that might be slightly hesitant to adopt CBDC. All hesitations will be explored, challenged and tried to be resolved. Don’t be surprised if we start to see a long and carefully crafted campaign to win the trust of the American people around the transition from traditional money to CBDC branded as “progress”.
Cash is still used, but is declining as a preferred payment method
According to a new Pew Research Center survey published in early October, 41 percent of 6,034 American adults said none of their purchases in a typical week are paid for using cash, up from 29 percent in 2018. By contrast, the 59 percent of respondents said all, almost all, or some purchases are paid for using cash.
Among those surveyed, 58 percent of Americans said they try to make sure they always have cash on hand. However, upon closer inspection, 54 percent of 18-49 year olds don’t care if they have cash or not, as they can use other payment methods. In contrast, 71% of respondents aged 50 and over try to make sure they always have cash on hand.
The IMF will want to understand any persistent, mild or strong preference for cash and then try to extinguish that preference. Another challenge lies in the hesitancy of some clients and merchants to join the CBDC ecosystem, as the IMF’s deputy managing director. pointed out—and then proposed a solution:
“We need a better understanding of what’s the cause, what’s driving this hesitation. One way to solve it relates to our data question. That is, can we create enough value—whether by joining this ecosystem, if the consumer can enjoy many more financial services, if he can get credit—he may be willing to join the [CBDC] ecosystem, right?”
Organizations dedicated to steering the world in a direction that aligns with a vision of increasing centralization, where the concept of “personal privacy” is as foreign as aliens from Mars visiting Earth, are not backing down. And neither should Americans who value the right to privacy as rooted in their God-given freedom.
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