Centralized Bank Digital Currency

DEFINITION: Centralized Bank Digital Currency (CBDC) is a proposed monetary reform according to which a nation’s central bank would institute a universal system of digital tracking of all financial transactions occurring under its jurisdiction.

CBDC is intended to replace cash, checks, conventional credit cards, and all other independent media for conducting financial transactions.

USAGE: From a technical point of view, CBDC involves (1) centralizing all financial transactions without exception under the central bank’s control and (2) tagging every digital transaction with a unique digital “signature” or tracking number.

In this way, a national bank would potentially be able to obtain complete information about all financial transactions occurring within its jurisdiction. This knowledge, in turn, would give the bank’s management—as well as higher government officials—complete control of the financial lives of all the nation’s citizens.

The possibility of extraordinary abuse inherent in such a system is obvious. Why, then, would anyone want to put CBDC into effect?

CBDC is being sold to the public (for example, The Curse of Cash by Kenneth Rogoff) as a way of making the financial industry more efficient and of fighting crime by making money laundering virtually impossible.

On the other hand, it is disquieting to know that, among all the world’s countries, it is the People’s Republic of China that has led the way in implementing CBDC. As of this writing (the spring of 2022), CBDC has already been rolled out in China on a limited, experimental basis.

What is the special attraction of CBDC for China’s leaders?

One can only speculate, but it is hard to believe that the answer does not lie precisely in the additional control over the Chinese people it affords them. After all, from the point of view of the Chinese Communist Party, CBDC is simply a logical extension of the Social Credit System of totalitarian political control already in effect in Communist China.

It is sometimes argued that CBDC is unlikely to be adopted in the United States, due both to vested interests in the status quo and to the historical significance of the US dollar and the affection in which it is held.

However, the United States, too, is not lacking in government officials and politicians who would like nothing better than to increase their control over the American economy and people.

In short, totalitarian control appears to be a feature of CBDC, not a bug. For this reason, all citizens who value their freedom should be highly skeptical of this technology.