In an era characterized by swift digitization and diminishing reliance on physical cash, nations across the globe are delving into the potential implementation of central bank digital currencies (CBDCs). Representing a digital evolution of traditional currency, CBDCs are issued by a country’s central bank and have prompted widespread exploration, with over 130 countries considering or already introducing such currencies.
This surge in interest raises crucial inquiries regarding privacy, security, accessibility, and, notably, trust. Ori Freiman, a postdoctoral fellow at the Faculty of Social Sciences’ Digital Society Lab and The Centre for Governance Innovation’s Digital Policy Hub, focuses on the responsible implementation of emerging technologies, including CBDCs. In this edited interview, Freiman shares insights into the prospective world of CBDCs, their potential impact on national economies, and the essential steps for gaining public acceptance.
Q: What defines a CBDC, and how does it differ from existing electronic payment systems?
Freiman: While various definitions exist, the consensus is that a CBDC is a digital currency issued by a central bank. Unlike existing digital money stored in bank accounts or accessed through credit cards, which is commercial bank money, a CBDC is directly backed by the central bank. When we withdraw physical cash from a bank, the central bank is responsible for ensuring its acceptance.
Q: In a society already equipped with electronic payment alternatives, why would we need a CBDC?
Freiman: This is a pertinent question under discussion. Advocates argue that CBDCs enhance societal safety by combating money laundering, terrorism financing, and organized crime. They also offer a more effective means of curbing tax evasion and the underground economy. Additionally, CBDCs allow for targeted programming, directing funds exclusively towards rent, food, medicine, or implementing age-related purchase restrictions, aligning with government social policies. As digital transactions become more prevalent, CBDCs serve as a means to maintain central bank money in the economy.
Q: How do cryptocurrencies intersect with this scenario?
Freiman: The motivation behind CBDC development is often driven by concerns over losing monetary sovereignty. Cryptocurrencies like Bitcoin pose a risk of people using currencies beyond the control of the central bank and government, potentially undermining a country’s economic control.
Q: Critics raise concerns about financial surveillance and CBDCs. Could you elaborate on these concerns?
Freiman: Digital nature brings inherent issues of access, control, and data surveillance. The fear of a centralized ledger granting governments access to individual transactions is a genuine worry. Opponents point to instances like the freezing of bank accounts during protests as potential misuse of financial instruments, cautioning that CBDCs could exacerbate such scenarios. The ability to program money for social policies also raises concerns about potential discriminatory uses against certain populations.
Q: How can these concerns be addressed?
Freiman: Privacy-enhancing technologies and oversight committees are potential mechanisms to mitigate concerns. The design and implementation of safeguards, such as not saving transaction data, play a crucial role in ensuring responsible CBDC use.
Q: What can we expect in the global adoption of CBDCs in the coming years?
Freiman: The future of CBDCs remains uncertain, with many countries preparing for their potential introduction. Trust is identified as a key factor; a recent Bank of Canada report revealed public mistrust, emphasizing the need for concerted efforts to instill confidence in the adoption of digital currencies. The landscape is complex, with numerous factors influencing the trajectory of CBDCs on the global stage.
