Are Central Banks Missing The Point With Central Bank Digital Currencies?

The UK Chancellor (Treasury) posted a video on YouTube recently to announce the possible launch of a digital currency issued by the Bank of England, baptised ‘Britcoin’ informally. He says – in the video – that governments and Central Banks “around the world are working together on this.”

This sounds very on the ball. Very out there. But wait a minute, are we not entirely digital already? After all, we use Apple Pay, Square, PayPal. Google Pay and are generally contactless; the days that anyone carried paper money or coins in a wallet with them seem – since the pandemic – well behind us. So, what’s so new about a Central Bank Digital Currency or CBDC?

Today’s money we use – even if it is not physically in our pockets - is a so-called fiat currency. This means that the value of the currency is not (no longer) linked to gold, silver or any form of reserves, but is backed by the government that issues it – via its Central Bank.

Central Banks are the only entity in a country allowed to print new money as it is their role to control all the money in circulation in an economy. Therefore, a Central Bank controls the economy and has quite substantial power over our daily lives, our real incomes and savings, especially in their capacity to set interest rates. Henry Ford (he of Ford Motors) famously said: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

So, if we have a digital pound instead of a coin, how would this be different? Not that much. A Central Bank controlled Digital Currency would make no real difference –unlike crypto currencies- because the issuing entity of the CBDC is still the Central Bank with all its powers intact. There is however a change in how this CBDC will be distributed. With a CBDC the Central Bank would issue the digital currency in the form of tokens directly to customers and do away with the intermediaries, i.e the banks where we have accounts now. This would allegedly give a government and its Central Bank actually even more control over the monetary system - us - than they have today?

The UK’s ‘Britcoin’ or CBDC therefore gives off the wrong idea as, yes, it is a digital currency but, no, it is nothing like a crypto currency. BITCOIN was founded – as are other crypto-currencies, exactly to counter the existing financial system and its enormous power to control economies. Bitcoin was founded as a currency/financial asset to escape the centralised financial powers; to not be influenced or determined by them and to be insensitive to interest rates, set by Central Banks. Many suspect that Bitcoin, and the other cryptos following it, was invented to avoid that normal, working people would be duped by the banking system as they had been in the Great Crisis of 2008; a way of the 99% to stand up to the 1%. It will be no surprise that young people are the main drivers behind the stellar growth of the crypto currencies. And it is equally unsurprising that most in the older generations do not like them.

The keyword to remember about crypto-currencies, any crypto-currency, is that they are decentralised, meaning no one has power over it. Not one person, one institution, banks or a selected group of people. Bitcoin is like a global collaborative; a co-op. Transactions are executed by ‘proof of work’, which is a complicated mathematical formula, calculated by groups of computers – nodes – in various locations and unknown to each other. It is important to know your Bitcoin from your CBDC. They are literally worlds - and generations - apart.

So, is a CBDC is just another word for what we are already doing with fiat money today? It does seem so. Not so exciting then.

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