February 13, 2023

Should we really be surprised that the Treasury and Bank of England are exploring whether to launch a state-issued digital pound? Sunak, after all, was the chancellor who first floated the idea of backing a central bank digital currency (CBDC) — already dubbed “Britcoin”. Nor was he alone: 11 countries, including China, Nigeria, The Bahamas and Jamaica, have already launched their own digital currencies, while more than 100 others, representing over 95% of global GDP, are deciding whether to follow suit. In the United States, the Federal Reserve Bank of New York has launched a pilot programme; the European Central Bank hopes to make a decision about the creation of a digital euro this autumn.

One might think that, amid a global cost-of-living crisis, these bodies would have other, more pressing concerns. But central bankers are never ones to miss an opportunity — and in fractious times like these, uncertainty is the most profitable opportunity in the business.

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To understand the sudden rush towards digital currencies, let’s begin with the notion of “digital money”: as flashy as this may sound, it’s nothing new. In fact, fiat currencies are already digital and have been for a long time: in the UK, for example, 95% of all the money in circulation is electronic (the ones and zeroes that make up the money in our bank accounts), and 85% of transactions are made electronically. Online-only banks are also becoming increasingly common. CBDCs are therefore clearly not about making money digital — it already is.

Where a CBDC would change things, however, is that the digital money would be created directly by the central bank, as opposed to commercial banks. Indeed, when people hear the words “money creation” or “money printing” they tend to think of central banks and quantitative easing, but most of the digital money held in our bank accounts is actually created by commercial banks. We tend to assume that banks collect deposits from savers and lend them to borrowers. But that is not how today’s system works. In reality, when a bank makes a new loan, it simply taps some numbers into a computer and “creates” brand new money, which it then deposits into the borrower’s account. The bank’s pre-existing deposits are not even touched; the money is effectively created out of thin air. Instead of deposits leading to loans, it actually works the opposite way: it’s the loans that lead to newly created deposits. In other words, the banks lend money that they don’t own, at a rate of interest.

This creates a number of problems. First and foremost, privately created digital money is always accompanied by debt (since the new money is created in the form of loans). Moreover, it means that to a large degree, private banks — not central banks — control the supply of money in the economy. This gives them the power to create a potentially infinite supply of money, especially through the process of securitisation, fuelling massive credit bubbles (which inevitably go bust). It also hands them control over where this money goes, which is usually to those who are already well-off and can therefore provide the necessary collateral.

There are several reasons, then, why the current system of privatised money creation is problematic, and needs to be radically reformed. But central bank digital currencies will not solve the problem, unless they were associated with a move towards a full-reserve banking system, whereby commercial banks could only lend deposits created by the central bank, thus giving the latter full control of the money supply. This, however, is not currently under discussion. As the Bank of England has made clear: “The digital pound would not fundamentally alter the traditional channels of money creation”.

So what is the point of central bank digital currencies? One of the arguments made by governments and central banks is that they would provide a safe, state-backed digital alternative to private cryptocurrencies, which are highly speculative, extremely volatile and outside the regulatory control of governments. Regardless of what one thinks of cryptos (personally I’m no fan), this explanation makes little sense. People invest in Bitcoin and similar blockchain-based cryptocurrencies precisely because they are decentralised systems beyond the control of governments, and because they hope their value will rise over time. It’s hard to see why those same people would opt for a highly centralised system like CBDCs, which have failed to build on any of the core insights that led to the creation of cryptocurrencies. Most CBDC implementations, for example, will likely not use any sort of distributed ledger technology such as blockchain.

Other arguments offered in favour of CBDCs — that they will help promote financial inclusion, improve transactions speeds and economic efficiency, bolster confidence in the currency, and even help fight climate change — either make little sense or are little more than empty slogans. Why would the 1.2 million people in the UK who don’t have a bank account be inclined to open a “digital wallet”? Why would the latter be less energy-intensive than ordinary bank accounts? And if governments want to lower transaction fees and bank charges, why don’t they simply legislate to that end?

Ultimately, it’s unclear exactly what problems CBDCs are supposed to solve or even what their benefits would be. The potential risks of digital currencies, on the other hand, are all too clear. One issue is that of privacy. CBDCs would allow central banks to monitor, record and analyse all transactions in real time, accumulating sensitive payment and user data at an unprecedented scale. As a report published by the IMF notes, “accumulating so much sensitive data in one place increases security risk by making the payoff for would-be intruders much greater, amplifying the scope and scale of many of the security and privacy threats that already exist in today’s financial system”. Such threats could come from cybercriminals or foreign states — but they could also come from government authorities themselves.

CBDCs, after all, would give governments sweeping powers of surveillance and control, allowing them to instantly punish citizens and consumers for behaviours deemed undesirable, by fining them or even locking them out of their accounts at the flick of a switch — in much the same way as China already uses its “social credit” system to prevent people from buying plane and train tickets for so-called “behaviour crimes”.  

This is especially true if we consider that the widespread use of CBDCs could accelerate the transition towards a “cashless society”, a pet project of the World Economic Forum, in which all transactions are monitored and recorded (even though the Bank of England and the Treasury deny that the digital pound would replace cash). Another related issue is that of social manipulation, insofar as CBDCs are “programmable”, meaning that the money can be restricted in the way in which it is used; when, where, by whom — and even whether it can be used at all. This would confer governments a huge degree of control over the spending and consumption habits of citizens — for example to enforce ostensibly “green”, “climate-friendly” and “healthy” choices, or to blacklist certain companies, products and even countries (forget that Russian caviar!).

Now, it’s important to note such tools could potentially be used for positive ends. Theoretically, they could be subject to democratic accountability and control, and could be used to track criminal syndicates and illicit activities such as money laundering, and to reduce corporate tax evasion, rather than to go after ordinary citizens. But the past few years have made it pretty clear that Western states are heavily swayed by the ruling factions of the capitalist class that make up the biopolitical lobby, the intelligence and security establishments, and globalist organisations such as the WEF — factions that have no qualms about using the repressive powers of the state to cement their rule, and discipline the masses.

In this context, it is perfectly normal for people to be concerned about handing over even more power to governments. The latter, let’s not forget, have already resorted to the kind of techno-authoritarian tactics that critics fear digital currencies will be associated with. Last February, for instance, Canada’s “progressive” government froze several bank accounts connected to truckers protesting the vaccine mandates in the country in order “to pressure protesters to leave the city’s streets”. Similarly, throughout the pandemic, Covid passports were used in several countries to deny millions of people access to a whole range of public spaces and services on the basis of their unvaccinated status.

It’s easy to see why many link the plans for CBDCs to the push towards the normalisation of biometrics-based digital IDs, which aim to make the enjoyment of basic human rights, such as the right to freedom of movement, conditional upon the positive scanning of digital passes. It’s tempting, of course, to dismiss such concerns as the product of over-imaginative minds that have watched one episode too many of Black Mirror — if only such policies hadn’t been implemented already.