The Trap of Digital Currencies and How Bitcoin Can Save You
This story is based on one of my stories in the series about Universal Basic Income. By popular demand, I have added some more information regarding Bitcoin.
Central Bank Digital Currencies
Digital currencies are the digital version of the dollar, euro, yen, or whatever national valuta. The phrase `central bank digital currency´ has been used to refer to various proposals involving digital currency issued by a central bank. Central bank digital currencies (CBDC) are also called digital fiat currencies or digital base money. CBDCs are directly inspired by Bitcoin and cryptocurrencies, but CBDC is different from virtual currency and cryptocurrency, because CBDC´s are issued by the state and are centralized. It gives the government tremendous control over your money. Most central banks are studying implementing CBDCs and could implement them within two years. The central bank, government, or maybe even an approved private-sector entity would likely implement CBDC by using a database. There would be centralized control in contrast with cryptocurrencies, so a blockchain or distributed ledger would not be necessary.
Universal Bank Account
Proposals for CBDC implementation often involve universal bank accounts at the central banks for all citizens. I hope private banks are paying attention because this would be a severe threat to their revenue model. CBDC is a digital bearer instrument that can be stored, transferred, and transmitted by all kinds of digital payment systems and services. CBDC is a high-security digital instrument, and like paper currency, each unit is uniquely identifiable to prevent counterfeit. It makes it feasible for a central bank to keep track of the exact location of every unit of the currency (assuming the more probable centralized database form); tracking can be extended to cash by requiring that the banknote serial numbers used in each transaction be reported to the central bank. As a citizen, you will have a universal bank account with the central bank. On this account, you will receive your UBI as a digital currency. The digital currency that you receive is uniquely identifiable. Can you already see where this is going?
Total Control
The government will be in total control of your financial situation. They can track down where you spend your money, what you spend it on, what food you buy, etc. There are no limits to the control they can exert. The controllers of the issuance of CBDC can add or remove money from anyone’s account with a flip of a switch. Current CBDCs such as China’s DCEP permit the issuance of new currency, meaning inflation is possible. Another possibility is that your UBI will be only spendable for a specific month; any money left at the end of the month can be taxed extra or just be deleted. It makes it possible for the government to enact money policies on a micro-level. It even can get crazier; with a digital currency, it is even possible to decide where you can spend your money. You could be allowed to spend your money at Amazon, but not at AliExpress, spend money on vegetables, but not at McDonald’s, etc. If you are in a country with public health care, the government could raise your policy excess if they see you buy too much unhealthy food. If you don´t have your vaccination, you cannot spend your money on the cinema, café, or restaurant. With a digital currency, all these things are possible and not very complicated to implement. If you were allowed to save some money from your UBI, the Central Bank could charge negative interest, and there would be nothing you could do about it. The amount of control the government would have over your finance would be beyond imagination, and I am sure my list is not complete.
To top it all off, imagine all this, combined with a social credit system like China is using, and the totalitarian nightmare is complete. A social credit system is straightforward to control if there is CBDC. China uses four social credit systems: a judicial system, a municipal social credit system, the People´s Bank of China financial credit system, and a commercial credit-rating system. What are some of the things which this system can do? And remember, this social credit system is already active, so we are not talking about the future but the present. People can be denied flight tickets or high-speed train tickets, which results practically in a travel ban. With CBDC, this would be easy to control; you just would not be able to spend your money to buy a ticket. China is rewarding individuals for aiding authorities with enforcing restrictions on religious practices. In Western countries, this might be a little bit far-fetched, but one can imagine that certain groups can have rewards, while others receive penalties. There is an app that reports deadbeat debtors around you, and you are encouraged to report that individual. The rewards of having a high score include easier access to loans and jobs and priority during bureaucratic paperwork. Likewise, the immediate negative consequences for a low score, or being associated with someone with a low score, range from lower internet speeds to being denied access to certain jobs, loans, and visas. The system has also already been used to prevent people from renting hotels or using credit cards. This is not a complete list, and I limited this list only to more or less finance-related issues.
Bitcoin
A complete closed system is possible with CBDC, and as we can see now in this COVID-19 times, governments will not stop for anything to get more control. The trap is slowly closing. Is there an escape? Yes, there is; it is Bitcoin (BTC). Bitcoin is completely decentralized, and no one has absolute power over BTC. Governments cannot interfere. There is also a top on the supply (21 million), and no one can start the printer to make more BTC. For many people, the concept of BTC feels uncomfortable because you cannot really see the `value` of BTC while we are used to fiat money.
Since 1971, when Nixon broke the coupling of the dollar with gold, the `value` of our fiat money is also about trust, because in reality, it is just paper now. But the winds are changing. BTC is getting traction. Big investors are now investing in BTC, and companies put BTC on their balance (for example, Tesla).
Also, on the user side, things are moving fast. BTC is accepted as a collateral, and making payments with BTC is getting easier. PayPal already has implemented BTC, and VISA and Master Card are also working on implementation. The number of BTC ATMs in North America is close to 30.000 and that number is rising quickly.
What if a country bans BTC? To ban BTC, is as hard as banning drugs. The government has absolutely no control over BTC. So they can only indirectly use their power. Nigeria tried to ban BTC, as a consequence, the use of BTC skyrocketed. Nigeria has now withdrawn its plans.
Cryptocurrency has become a worldwide transaction of which you cannot even identify who owns what. The technology is so strong that I don’t see the kind of regulation that we can do. Bitcoin has made our currency almost useless or valueless.
Senator Sani Musa
Other countries where the financial system has gone down also use BTC as a replacement. We see this in Iran and Venezuela, and more recently in Lebanon. That BTC is able to replace fiat money has already been proved. Recently the Deutsche Bank has declared Bitcoin the third largest world currency. To be precise, they left out the Chinese Yuan, but even including the Chinese Yuan leaves BTC fourth place. If you don´t want to get trapped into CBDC, BTC is the alternative.
Conclusion
Central Bank Digital Currency, especially if this is combined with a Universal Basic Income, will give the government total control over your personal situation. You will be a serf to the system; the government will know what you buy, what you eat, and where you buy. The government can determine what you buy and what you eat and determine where you buy things. The government will be able to give you money that you can only spend within a specific time frame. The government can easily take money from you, or the central bank can charge negative interest, and you will have nowhere to go. If you don´t want to get trapped in this system, Bitcoin is the way out.
Interesting links:
There Is No Financial Bubble, Hyperinflation Is Already Here
Universal Basic Income, How To Sleepwalk Yourself Into Serfdom. Part III: Digital Currencies, Total Control
Universal Basic Income, How To Sleepwalk Yourself Into Serfdom. Part II: Government: The Hand That Feeds and Takes
Universal Basic Income, How to Sleepwalk Yourself Into Serfdom. Part I: Robotics Will NOT Make Us Jobless
Why BTC Will Survive CBDCs