Central bank digital currencies could mean the end of democracy

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This article originally appeared on The Conversation, an independent, nonprofit source of news, analysis and commentary from academic experts. Disclosure information is available on the original site.


Author: Ori Freiman, Postdoctoral Fellow, Center for Ethics, University of Toronto

In recent years, we have seen a growing interest in the idea of ​​central bank digital currencies. Similar to cash, central bank digital currencies are a form of money issued by central banks.

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In each country, a central bank manages the local currency and monetary policy to ensure financial stability. Unlike cash, central bank digital currencies are expected to update national financial infrastructures according to the changing needs of the economy and technology.

Led by international financial institutions such as the Bank for International Settlements and the International Monetary Fund, central banks examine technologies, conduct experiments and prepare national economic scenarios. However, central banks cannot – and should not – identify the social consequences of implementing this technology.

The transition to national digital currencies gives governments the ability to automate transactions and create conditions under which they can be spent. This raises crucial implications for democracy that need to be identified and considered before central bank digital currencies become a reality.

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Important Questions to Consider

Central bank digital currencies should allow authorities to completely control the finances of their citizens. States would be able to prevent citizens from buying services and goods, and governments would gain greater influence and control over people’s lives.

For example, societies may decide whether preventing a gambling addict from buying a lottery ticket is a positive characteristic of money. Likewise, they might also be able to decide whether social assistance can only be used for food, medicine and rent.

The introduction of a central bank digital currency raises a number of important questions. The first is whether or not people would benefit from the new features of these digital currencies. The second is whether we can be sure that these characteristics, in the hands of governments, will not undermine the already fragile foundations of democracies. These two questions raise important discussions about the future and our values ​​as a society.

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There are also many open questions that citizens, rather than central banks, should deliberate. Do we want to connect personal financial information to credit systems? How about sharing healthcare spending or political donations with governments and corporations? How do we feel about issuing different money, with different financial characteristics, to different people? What is the social significance of custodial cash alongside central bank digital currencies? Do we even need a central bank digital currency?

We don’t want to leave these issues solely to those who develop and implement digital currency systems, or raise them too late. Currently, concerns about democracy are lagging behind the race to implement central bank digital currencies. We must have these discussions before it is too late.

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Maintaining democracy

When it comes to decisions related to central bank digital currency infrastructure, each country should consider whether structural changes are needed to maintain democratic control and appropriate checks and balances.

This applies not only to central banks, but also to security agencies and anti-money laundering and tax collection authorities, who will most likely have access to user information and may freeze accounts. and confiscate the funds.

It is up to democratic institutions to ensure that actions such as freezing the bank accounts of political dissidents do not become common practice.

There will be those who will say that central banks are just reviewing and preparing the infrastructure and, when the day comes, it will be governments who will fill in the details. But this kind of response is unacceptable. It detaches the designers of the system from those who are responsible for making it work and, more importantly, from those who will be affected by it.

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Various discussions needed

Deliberation requires a diverse mix of public representatives, including the marginalized, the elderly and poor, people living in remote locations, and people with disabilities. Social organisations, universities, citizens and the press should highlight different perspectives.

The bottom line is that central bank digital currencies are not just about technology, but also about political power and social justice. They have the potential to trigger unintended, unwanted and unexpected societal consequences – only time will tell what those consequences are.

Although central banks are responsible for bringing social issues to the public arena, democratic institutions must take the lead on this issue. Countries should only implement digital currencies if they can guarantee that their governments and authorities will not cross red lines. These rules and regulations must be made immediately by democratic institutions, not exclusively by central banks.

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Ultimately, what lies ahead is not just a technological breakthrough in payments, but a fundamental shift in the global financial infrastructure. This change should lead to changes in the social and political fabric of societies, and we must prepare for it in a democratic way.


Ori Freiman does not work for, consult, own stock or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond his academic appointment.


This article is republished from The Conversation under a Creative Commons license. Disclosure information is available on the original site. Read the original article: https://theconversation.com/central-bank-digital-currencies-could-me https://theconversation.com/ce



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