MNBCs: A new control weapon for States?

Central bank digital currencies (MNBCs) or (CBDCs) have been spreading considerably over the past few years. Seduced by their strengths (speed of transactions, traceability, security, etc.), several countries around the world are investing in their development. As a reminder, these currencies are a new form of digital currency issued, managed and controlled by the central bank of a country or monetary zone. The concept of MNBCs is generating real enthusiasm from governments and economic experts. However, it is not unanimous. Many citizens, especially members of the crypto community, see these currencies as a new weapon of control and surveillance available to states. They fear that they will be diverted from their original objectives and used to restrict financial freedom. Are these accusations really justified? Should MNBCs be considered a threat or an opportunity?

State of play on the rise of MNBCs in the world

MNBCs are slowly but surely gaining ground despite the outcry they are causing around the world. As proof of this, the number of existing digital currency projects has increased considerably in recent years.

According to the platform Atlantic Council, about 105 countries, which account for 95% of the world’s GDP, are exploring the possibility of issuing an MNBC. These figures are supported by a survey of Cointelegraph who adds that 39 of these countries have already launched MNBC initiatives.

For now, only Jamaica and the Bahamas have a fully functional MNBC. Most of the other initiatives underway are pilot projects or proofs of concept. They allow governments to “test the waters” and assess the first results. Among these initiatives, we have:

• The Chinese digital yuan (e-CNY) whose launch was certainly the most publicized. We still know little about it, except that this currency will serve to strengthen the political and economic presence of China,
• eNaira, Nigeria’s CBDC, which is off to a slow start. To boost this currency, the government has limited the amount of weekly cash withdrawals for civil servants and the population,
• Maize, developed by the Central Bank of Saudi Arabia and the Saudi Arabian Monetary Authority.

And that’s just the beginning ! From Ukraine to India via Japan, countries are rushing not to miss what could be a great revolution for the global monetary system. The enthusiasm of governments for MNBCs is perhaps remarkable. But everything suggests that he hides dark motives.

MNBCs: a weapon of control for Central Banks

As economist Murray Rothbard puts it, “ the state seeks to control everything in order to be able to justify its existence and maintain its power “. This desire for control is the essence of all organizations that derive from the executive power, and therefore from central banks.

Therefore, to some extent, MNBCs may well constitute a weapon of control for central banks. This point of view is explained by the following arguments.

Revenge on the crypto market

You are probably aware of it, but bitcoin, born in 2008, in the midst of the financial crisis, as a scathing response to banks and governments which, according to many, had failed in their management of fiduciary money. Bitcoin has a clear and ambitious goal: to replace traditional currency and offer a decentralized alternative. For what ? Because it puts power in the hands of the people, and no longer of the institutions. It’s a silent revolution, but one that rumbles a little louder every day. And who knows? One day, we could well do without these bits of paper and metal that we call money.

This philosophy, which also underlies other cryptocurrencies, is frowned upon by central banks. They are aware that the current monetary system is failing, but refuse to lose control of money and the economy.

Central bank digital currencies were therefore born of this desire to maintain monetary monopoly. Their creation would be an attempt to regain control over the crypto market by offering a legal and regulated alternative to private cryptocurrencies. In this way, central banks could continue to play their role of monetary regulation and financial stability.

The Nature of Central Bank Digital Currencies

Central bank digital currencies are, by nature, issued, managed and administered by central banks. Because of these characteristics, they could well become a weapon of strategic control in the hands of these institutions. Here are some things that prove it:

• Traceability of transactions: central banks could have complete visibility of all transactions carried out with an MNBC thanks to the blockchain technology on which this currency is based,
• Control of monetary policies: central banks could exercise direct control over supply and monetary policy and thus significantly influence the economy,
• Financial monitoring: MNBCs would make it possible to monitor the flow of funds and the movement of money thanks to the traceability of transactions. This would facilitate financial monitoring,
• Fiscal policies: CBDCs could facilitate collaboration between central banks and governments in the implementation of fiscal policies,
• Elimination of financial anonymity: Unlike decentralized cryptocurrencies, MNBCs could help clearly identify their users. This would allow central banks to collect data about them.

No innovation is inherently good or bad. It all depends on how it works and especially how it is used. Unfortunately, the possibilities offered by MNBCs give too much power to central banks and governments and open the way to applications that are harmful to the financial freedom of individuals.

A risk of misuse by governments

As we mentioned in the previous paragraph, MNBCs concentrate too much power in the hands of governments. They could strengthen their control capacities. That’s not all. They could also create a system that could harm the individual rights of users.

Imagine, for example, that a government could monitor an individual’s spending and access all the details of his or her financial life through an MNBC. It could impose monetary censorship on it, or even eliminate all of its assets. No government should logically have such power. The risk of falling into totalitarianism is too great.

What about citizen privacy and anonymity in the age of MNBCs?

The issue of privacy and anonymity of users of central bank digital currencies is also acute.

Today, the main advantage of cash is the anonymity it provides. Cash transactions are discreet and untraceable. This is an advantage for financial freedom. Unfortunately, we risk losing it with the adoption of MNBCs.

Indeed, with a digital fiat currency, each transaction would be recorded and controlled by the central bank that issued it. We talked about it above. Thus, central banks would now have an eye on all financial transactions. Although, on the one hand, this idea can contribute to the fight against offenses and crimes, it poses the problem of respecting the confidentiality and privacy of citizens.

As indicated by a report of the Economic Affairs Committee of the British Parliament, “no MNBC can guarantee the same level of anonymity as cash”. But then, what should be done? The best solution would be to put more effort into the code to ensure some degree of anonymity. For example, we could guarantee the non-traceability of transactions whose amount does not exceed €1,000.

These are all points of reflection on which it will be necessary to look into in order to guarantee a moderate, effective and profitable use of MNBCs for all. In sum, we believe that these digital currencies could well constitute an additional weapon of control for governments and central banks. To remedy this, it is important to establish a consensus and to develop a transparent and precise regulatory framework regarding the use and operation of MNBCs as well as the exploitation of the data associated with them.