I expressed my opinion last year about Bitcoin and how it will fail to achieve its full monetary potential.
On October 13 2021, G7 nations endorsed 13 public policy principles for a Central Bank Digital Currency (CBDC).1
On February 1 2022, newly appointed Governor of Jordan’s Central Bank expressed interest in studying the prospect of a Digital Jordanian Currency.2
If you would like to read the 13 principles, link here.
I want to share my opinion on what CBDC would entail:
GOOD
-Consolidation: Old idea of connecting all accounting systems/softwares worldwide to ensure smooth practices.
For e.g. Company A is connected to the system and sends an invoice to company B. The accounting software immediately calculates the sales (and any other) tax on this invoice. It automatically computes the invoice in the ledger and the cash flow statement. All the CFO/CEO have to do is press a button on when to transfer.
For one, companies wouldn’t need to file sales tax returns as they are automatically processed. This however requires an overhaul of the tax system.
Balance sheets would also be linked per individual items (if in a balance sheet, it shows company A has receivables from company B, the software would ensure the numbers match up on both balance sheets).
-Also, GDP (and M1/M2) will be easily calculated, even on a daily basis. Knowing exactly how much is being spent in the economy, and exactly what items it is being spent on. Data accuracy all the way. No more tax audits or statistics census.
-For consumers, there shouldn’t be a big change if most (bourgeois) people have gotten used to paying with a card at check out and paying their bills with efawateer. But how will you thank the person who carried your groceries, wouldn’t it be awkward to wirelessly transfer a tip? Will beggars start having payment terminals?
-On paper, policy makers simply look at what digital currency would do:
Stop the black market: No more bribes, no more purchases of drugs and illicit weapons.
It will also stop worrying about how much physical cash is out there lost inside your couch.3
It will also save a lot of money (and resources) from printing and minting new money.
So what will happen to local commercial and islamic banks:
They will go back to basics - banks will only be a place where you deposit your digital money for an interest and take out a loan at a higher interest. Bank’s revenue will only come from the difference. No more hidden fees left, right and center.
-Another thing, thanks to the digital currency, a person’s or company’s credit score would immediately be visible on the system (are they paying their bills and loans on time?)
BAD
-Privacy is of course thrown out of the window.
-Cyber attacks and possibility of hacks (phishing attack on NFT platform Opensea4), especially for the less tech savvy and the vulnerable part of the society.
-What happens when the whole grid goes down?
-Where will the system and ledgers be stored?
-How will a person have access to their money and be able to dispose of it? Through a card (and if it got lost)? Arm band? Circuit inside your skin? Finger print? Eye sensor?
-Small issue for the data purists: If you have your own lemon tree and consume freely (by God’s benevolent grace) from that tree, how will the Department of Statistics and Ministry of Agriculture know if we have self-sufficiency in regards to citrus fruits and whether to encourage planting more? Same goes for rain water5 collected and electricity/heat from the sun. How do we compute and factor in all this free stuff?
UGLY
Conspiracy theorists are worried of controls that can be put in place. Many sci-fi books, video games and movies have tackled this.
Imagine you get black-listed for liking a post on social media or funding an anti-vaccine movement. Your account is immediately frozen. Unless a digital currency is followed by a just and fair legal system of checks and balances, you will then have to go over and beyond using all your wastas to get your account unfrozen.
Also as per the bank section, credit scoring could become an issue: in some countries, if you go and vote in an election, your credit score would go up. Maybe the government will also control and monitor how many times you went to pray (+ credit points) or took off sick from work (- credit points). Crazy unjustifiable incentives will be put in place.
Maybe Jordan decides to launch a nation wide health care system to all. However if you spend a lot of money purchasing packs of cigarettes, you will be deducted “health points” and if you ever go to a hospital, maybe that new lung transplant won’t be for free.
Another ugly point: this type of system will require investing in a whole new infrastructure. Which company will win this tender?
Conclusion
Is this the best and ultimate rational system we could think of that could ensure a smooth running of society while maintaining our personal freedoms? Is there a trial phase where we could opt out or revert back in case we don’t like it? Or maintain a hybrid system where physical cash and digital currency live side by side?
Or maybe a simpler, cleaner, easier system could be thought of…
In the meantime, the government should focus on securing water + energy infrastructure as well as a prosperous environment for businesses across all sectors.
https://cointelegraph.com/news/central-bank-of-jordan-reveals-cbdc-plans
https://www.theverge.com/2022/2/20/22943228/opensea-phishing-hack-smart-contract-bug-stolen-nft
https://worldwaterreserve.com/is-it-illegal-to-collect-rainwater/