Our Dystopian CBDC Future. Part 1

Those looking forward to the emergence of central bank digital currencies in developed countries may be up for a very nasty surprise. The long-awaited CBDCs are likely to become one of the worst tools of mass surveillance.

Have you noticed how the development of central bank digital currencies happens really slowly? Typically, we attribute it to the sluggishness of the authorities, to their lack of understanding of the blockchain, etc., and write it off. Many crypto market players share an almost ironic view of CBDC, seeing it as a digital version of regular fiat money, with their all-too-familiar shortcomings.

Recent evidence increasingly suggests that the reality will be much, much worse: The introduction of CBDC won’t just introduce the digital euro (dollar, yen, etc.), but also a means of total control with blockchain capabilities. Our money will become “colored”: now, not only a tax official or a bank clerk, but any vendor will know whose money they’re handling. And our social rating will determine the personal “weight” (purchasing power) of money, and a limitation on our rights to settle with or receive it.

In this, we see a continuation of the prevailing trend. About 95% of the information about a modern city dweller is already easily accessible. We reveal almost everything about ourselves through smartphone billing, credit cards, GPS, social networks, and online activity in general. Add to this video cameras (with face recognition), “smart speakers” with audio controllers, drones, satellites, etc. And only cash (and cryptocurrencies, of course) still provide a degree of privacy.

Judging from history, no state would ever miss out on another method of control over its citizens. And it is not just “control” as in “the collection of all information” (the French meaning of the word), but also “control” – “the management of human behavior” (the English definition).

China is already showing us an example of how it all will happen. Their authorities have launched a large-scale experiment to introduce an “advanced version” of the digital yuan with an added “expiration date”. That is, if you have not spent the money in the allotted time, they “burn out”. (Alternatively, their purchasing power begins to decline by a certain percentage each month.)

The official rationale for this approach is that money must work for the benefit of the economy, not just get piled “under the mattress”. So, whether you want it or not, buy stuff. Of course, a person is then limited in their right to use money, but it’s not like China has shown much regard for human rights before…

In the first stage of the experiment, in the city of Shenzhen, 100,000 residents received 200 digital yuan ($ 32) each. They had ten days and a limited amount of places to spend them. For this experiment, the authorities picked 10,000 stores (few by Chinese standards). In order to spend the money, people had to download a special mobile app and enter a lot of their personal data into it. As a result, for only thirty dollars, all the participants in the experiment voluntarily found themselves “under the microscope” of the state.

Here’s another Chinese paradox: formally, the digital yuan is anonymous. Well, to the extent that anything can be anonymous in China. However, even the official Beijing, represented by the People’s Bank of China (the country’s national bank), admits that “Chinese CBDC is under strict supervision”. So the Shenzhen experiment doesn’t only test the digital yuan circulation system or the economic model of “expiring money”, but also the management of electronic cash owners’ personal data.

From an economic point of view, there is a clear justification for the “managed money” system: The expiring yuan would help withstand a financial crisis. As we know, in a recession, people begin to save money, thereby reducing the consumption of goods and services. Which, in turn, aggravates the crisis. With expiring money, the government could force regular citizens to spend during a recession by artificially limiting its “shelf life”.

Making people spend money is a great way to overcome the crisis. It works for the government, the country, and business – just not for the people themselves. As we’ve already mentioned, it removes the right to voluntarily dispose of their own money. But the idea might be too attractive even for Western democracies to reject.

The authorities, however, have another, no less important reason to like CBDC. A top-down managed digital currency is also beneficial for large publicly funded projects. The issue before was financing massive construction or social undertakings without accelerating inflation. Now, there is a ready answer: the money could simply disappear after the project is completed.

This is where the capabilities of the blockchain become handy, as it allows you to “color” money. For many years, “colored” bitcoins have been used in some world regions as local currencies to solve various problems.

But the technology is applicable on a larger scale: the state could issue money for a specific project, prohibiting spending it for other purposes (those funds are “colored”). Even without prohibition, it clearly sees where any particular financing stream goes.

To be continued…