CBDC can allow government agencies and private sector players to programme … targeted policy functions. By programming a CBDC, money can be precisely targeted for what people can own and what people can do. — Bo Li, deputy managing director, International Monetary Fund
Central Bank Digital Currencies (CBDCs) and their threat to financial freedom make up my topic for today. Imagine having an RM100 note in your pocket, which you can use for any purchase as long as it’s within RM100. The best part is that your purchases are confidential, or at least they should be, between you and the seller. There’s no need to worry about third parties knowing how you spend your money, as it should remain private.
But what if your purchases, any purchase, can be traced and tracked? What if the confidentiality of what you buy and pay for is no longer guaranteed? Such an assault on a fundamental freedom is one of the risks that come with the advent of Central Bank Digital Currencies (CBDCs).
In a world with various forms of digital currencies and payment systems like cryptocurrencies, stablecoins, and e-wallets, CBDCs may seem like just another entry in an increasingly crowded field. It appears to make life easier for people by reducing or even eliminating the need to carry physical cash around.
However, what sets CBDCs apart from the rest is the fact that they are officially sanctioned and issued by national central banks. This gives CBDCs the status of fiat currency, making them legal tender and granting them weightage that no other digital currency possesses.
Additionally, unlike decentralised cryptocurrencies, CBDCs are managed by a single authority — the central bank that issues them. Consequently, any transaction or transfer of CBDCs must go through a centralised exchange, which is an important point that I will discuss later.
In Southeast Asia, Malaysia, Singapore, and Thailand are in the pilot project stage of launching their own CBDCs, while Cambodia, Laos, Indonesia, and the Philippines are in the process of developing them. Myanmar and Vietnam are still conducting research on CBDCs.
In 2022, the former Governor of Bank Negara Malaysia, Tan Sri Nor Shamsiah, revealed that BNM is actively scaling up its internal capacity to support informed decisions on CBDCs. The bank would look into the need for introducing a wholesale domestic CBDC before determining the necessity of issuing a domestic retail CBDC.
The benefits, however, seem to favour banks and governments rather than the people.
Banks save on physical infrastructure expenses, and authorities can now keep track of every transaction, ensuring that taxes are not evaded.
But — and here’s a significant concern — network attack could bring the system down and compromise the integrity of the entire nation’s financial and monetary network, thereby crippling the country. It would also have dire consequences for people’s financial security.
Furthermore, there is a lack of financial privacy due to the central bank’s ability to track and trace every transaction made.
“Absolute control” is the key phrase here. Currently, we can spend physical money without limitations as long as the price of goods or services aligns with the valuation placed on them by the merchant or vendor.
CBDCs change the game entirely. They increase the risks of government intervention in our spending habits, leading to the creation of a Big Brother state that restricts how we spend our own money.
Think that is far-fetched? Maybe not, especially when we consider this statement by Sir John Cunliffe, Deputy Governor of the Bank of England, who described CBDCs in the following terms: “You could think of giving your children pocket money but programming the money so that it couldn’t be used for sweets. There is a whole range of things that money could do, programmable money, which we cannot do with the current technology.”
Even today, certain governments have been overreaching and using their control of financial systems and networks to punish dissent. Take Canada, for example, where the government froze the bank accounts of Canadian citizens who donated to the Freedom Convoy — a group of truckers opposed to the COVID vaccine mandate in 2022. This was undoubtedly an assault on liberty, and it’s alarming to think that Canada is considered a Western democracy.
If physical cash becomes a thing of the past and we are forced to use CBDCs instead, we would be giving up numerous fundamental freedoms — freedom of privacy, the freedom of choice, the freedom to spend our own money as we wish. CBDCs represent a dystopian future, and we need to decide now if this is what we want because we do have a choice. We just have to say no, collectively.
DISCLAIMER:
The views expressed here are those of the writer and do not necessarily represent the views of the New Sarawak Tribune.
