Is This The Perfect Time For Central Bank Digital Currencies?
Over the past several weeks, the public response to the coronavirus has caused widespread economic damage, shuttering businesses, fueling job losses and sharply lowering expectations of economic growth.
The global economy has already entered a recession, which began in March, according to Bloomberg.
To respond to these difficult conditions, governments around the world have started employing aggressive stimulus measures, ranging from sending checks to citizens to announcing emergency rate cuts.
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
While these efforts might soften the downturn and hasten a recovery, policy makers could make far more well-informed decisions if their respective economies were leveraging central bank digital currencies (CBDCs).
By harnessing these digital currencies, government officials could potentially obtain a far better sense of key business activity, for example where transactions are taking place and which ventures are drawing investment dollars.
This information could help them pinpoint industries that are most in need of assistance, and also make it easier to evaluate the results of any stimulus.
The ‘Undeniable’ Potential Of CBDCs
John Iadeluca, founder & CEO of multi-strategy fund Banz Capital, emphasized the possibilities presented by CBDCs, describing their potential as “undeniable,” considering the economic fallout “caused by the coronavirus.”
“U.S. policymakers and citizens alike are seeing things like stimulus checks face heavy roadblocks, which can be solved via CBDCs.”
The IRS recently started mailing these checks to U.S. citizens, but distributing them could take as long as 20 weeks, according to a House Ways and Means schedule reported on by MarketWatch.
While these delays could prove frustrating for recipients, they could be eliminated through the use of CBDCs, claimed Iadeluca.
These digital currencies could provide “citizens access to these pivotal payments in a fraction of the time through streamlined, immutable monetary systems,” he maintained.
In addition to easing the distribution of stimulus checks, issuing a CBDC “would also open up the doors to novel monetary policy initiatives such as ‘air drops’ to citizens to stimulate spending,” said Matthew Dibb, cofounder and COO of digital asset management platform Stack.
Further, leveraging CBDCs could potentially make policy actions aimed at stimulating specific industries more effective.
“Recently, heavy amounts of capital flowed out of the travel industry faster than an unprepared economy could track, resulting in a $25 billion bailout,” noted Iadeluca.
“However, in a CBDC environment, virtually all transactions are zero-knowledge encrypted, enabling privacy and precision to where an impending domino effect from something such as tumbling airline industries could be categorized and calculated,” he stated.
‘Myriad’ Privacy Considerations
In spite of all these potential benefits, some digital currency enthusiasts have offered dire warnings about the negative impact that CBDCs could have on the privacy of businesses and consumers.
“Since CBDCs are necessarily centralized, this centralized control over the network would give CBs access to an unprecedented amount of data about individual and collective transaction patterns,” noted Jake Yocom-Piatt, project lead for Decred.
“While there are positive aspects to this, e.g. an ability to be more accurate and measured when issuing credit where it is deemed necessary, there are also myriad negative privacy implications,” he stated.
“This centralized control means that individuals or groups can be both instantly surveilled and/or deplatformed at the whim of the CB, versus an individual commercial bank doing similarly.”
Jesse Proudman, CEO of crypto hedge fund Strix Leviathan, also weighed in.
“While CBDCs present advantages in terms of transaction speed and transparency, those benefits come with the cost of privacy,” he stated.
“The broad-based adoption of CBDCs for fiscal stimulus will move consumer spending data out of the hands of private companies and onto public ledgers that will be monitored by central governments.”
Proudman claimed that while we don’t have privacy now, the situation would become even worse if central banks started issuing their own fiat currencies.
“There is a meaningful difference in transaction data residing across a patchwork for private companies, vs. transaction data residing in a government monitored ledger where each account is clearly identifiable to a citizen,” he noted.