Central Bank Digital Currencies: Does the digital revolution threaten privacy?

CBDC – A New Trend in the World of Central Banking

Central Bank Digital Currencies, or digital currencies issued by central banks, are currently a hot topic of discussion among economists working for governmental financial institutions. What does this new form of currency really mean? What are its potential implications for the financial system? Let’s delve into this issue.

What is CBDC?

CBDC is a virtual currency based on a federal reserve, such as the Federal Reserve Notes. It is a form of money whose value is always guaranteed by the central bank, such as the Federal Reserve in the USA. CBDC acts as a bridge connecting the currency holder directly to the institution supervising the financial market, which may raise concerns regarding privacy protection.

Differences Between CBDC and Traditional Currencies

The most significant difference between CBDC and traditional paper money is that digital currency can be “programmed” in a way that imposes restrictions on its use. This means that the central bank can control how and for what purposes this money is utilized.

Trust vs. Anonymity: CBDC vs. Bitcoin

Unlike Bitcoin, which enjoys a high degree of anonymity and independence from central banks, CBDC requires full trust in monetary authorities. For some individuals, this is a strong argument against the introduction of digital currency, due to concerns about losing control over their finances.

The Example of China and the United States

It is worth noting that in China, CBDC has gained immense popularity, where the government has actively promoted the digital yuan since 2019. In contrast, in the United States, despite limited social support for this initiative, there is a risk of its implementation. Therefore, more and more voices are raised in favor of the statutory protection against excessive surveillance.

Risks Associated with Privacy Loss

Barry Fagin, a computer science lecturer and senior fellow at the Independence Institute in Denver, points out the risks associated with the potential introduction of CBDC. His concerns mainly revolve around the risk of financial privacy loss and the escalation of control over our money, which could have far-reaching consequences for our freedom.

Conclusion

In the context of the growing role of technology in our lives, the debate on Central Bank Digital Currencies is intensifying. Are digital currencies issued by central banks the future or a threat to our privacy? Only time will tell what steps governments will take in response to these challenges.