The Bank of England is currently considering whether it should launch a digital currency, colloquially known as the ‘Britcoin’. It is very hard to see what the point of such a digital currency would be — the reasons given by proponents aren’t hugely convincing.
The original rationale for cryptocurrencies was that they were decentralised, and their supply was limited. The programmers who created crypto were generally distrustful of central banks. They argued that the limitless capacity created by central banks would inevitably give rise to inflation. So, they created decentralised cryptocurrencies that they said would continue to operate as a smooth means of payment when the fiat currencies collapsed.
If we take this argument at face value, other questions arise. Assuming the point of cryptocurrencies is to circumvent central bank money issuance, then what on earth is the point of a cryptocurrency issued by a central bank? If the central bank is issuing the cryptocurrency, then it de facto becomes identical to the fiat money the original proponents of crypto distrusted.
Then there is the issue of fiat money itself. Money today is already a largely digital affair. The numbers in your bank account when you put your debit card in the ATM machine are just that: numbers stored in a computer ledger. The ultimate ledger for all the currency in the economy sits in the Bank of England. So, it is unclear what difference it would make to integrate blockchain technology into this ledger and call it a cryptocurrency.
Reading the materials, one gets the sense that some over-eager folks in our central banks are falling victim to a fad. Everyone is talking about crypto these days, and so the technocrats want to be able to talk about it too. That said, if the fad ever caught on it is hard to miss the potential downsides.
The House of Lords have done the British people a good service highlighting some of these. The two that stand out most immediately are “state surveillance of people’s spending choices” and “an increase in central bank power without sufficient scrutiny”. Both are related, of course.
Blockchain technology stores permanent transaction records. If the central bank centralised this technology and ensured that the accounts were not anonymised, they would have full information of all purchases undertaken by every individual using the currency on file. As the Lords noted, this could easily be deployed by overzealous technocrats to snoop and pry in ways most of us would not be comfortable with.
This is part of a more general trend in Western economies. A few months ago, US Treasury Secretary Janet Yellen suggested that the Internal Revenue Service (IRS) should investigate bank accounts with larger than $600 balances. Yellen claimed that the goal was to stamp out tax avoidance by billionaires. This is a pretty dubious claim; in reality, Yellen just wanted to expand the already considerable power to snoop held by the IRS.
These technocratic fantasies seem to be converging on some sort of social credit score system. If technocrats do ever seize control over the banking system, then, in theory, they could track and even halt payments of citizens that have misbehaved in some way or other. While this may have sounded like a conspiracy theory only two years ago, since the onset of the pandemic many of us have seen somewhat similar technologies in action.
Not only would this be an enormous threat to liberty, but it would almost certainly end in disaster. The more control these technocrats try to exert, the more that goes wrong. We all remember the absurdity of the ‘pingdemic’ a few months ago that sent the high streets into chaos. Imagine what would happen if an entire social credit system was introduced.