Many people on HN claim that the rise of crypto-currencies is a social catastrophe.
Maybe so (I disagree), but wait until central-bank issued digital currencies become a reality, you'll very quickly learn the real meaning of social catastrophe.
Spending 10 seconds thinking about it, I can come up with the following scenarios:
- complete and utter "financial deplatforming" if you don't behave as a citizen. This is basically China's CCP dream come true.
- total loss of privacy: the absolute entirety of your financial interactions are an open book to the government. You won't be able to buy a pack of gums without big brother knowing about it, much less paying for your sex toys.
- security nightmare : how do you guarantee the soundness of such a system when it is centralized. Just ask Sony how long they manage to keep their private keys secret on average.
- security nightmare : preventing the leakage of citizen's private financial information. If the chain is public, there is none. If it is kept under lock and key by the govt: 1) no way to check what the actual supply is 2) subject to hackage and publishing the data publicly. Knowing the track records of governmental institutions when it comes to IT security, this is basically a guaranteed fuck-up within the first 5 years of such a system existing.
- economic nightmare: running the printing press full steam is now instantaneous and gives the government even more unchecked power to spend money on brain-dead programs, without leaving any decision-making power to the citizens.
I don't think we will avoid the implementation of such an abomination, but I do believe that - like in everything political - if there's healthy competition from decentralized chains such as Bitcoin, the craziness will be kept in check because there will be an escape hatch to the govt. economic jail.
We already have all of this. The government can tell your bank to do something, and your bank will do it. What a government digital currency would do is end the subsidy of banks as the only "safe" place to park money. If I have a government account with my money, banks don't get to gamble with it for their own benefit. If I want to do that, I could withdraw the cash from where it is safe and consciously put it at risk, rather than the government backstopping the finance industry.
If government bits are just the beginning of a banning of cash, that's the real problem; but there's no reason they can't ban cash now.
The benefit to some sort of government semi-distributed ledger would be that independent people could set up ATMs. Otherwise, I'd just be happy with postal checking/savings. We already have a bunch of post offices.
That's assuming that your bank cares about keeping your transactions private enough not to voluntarily submit to anything asked of it.
If you hate the idea, you'd still be free to park your cash with some rando that promises to keep it safe, just without subsidy. Hell, the existence of a gov digital currency might ironically stabilize bitcoin or a bitcoin-like.
You can park your money safely anyway, just buy a vault. There are even specialized bank accounts where they just store you money and don't lend it out.
However, you won't earn any interest, and thus will lose opportunity cost and also lose value as cash inflates.
Additionally, the money that banks lend is critical to the economy - which includes your job and the general welfare - like water to a person. If banks stop lending - if all that money gets put in a vault - businesses and citizes lose access to money to develop things and we get talented people and valuable resources sitting dormant, a depression.
Recently, and for the foreseeable future, interest rates are/will be so far below inflation that they truly do not matter. A mattress might be just as good as a bank for the next decade or so.
It's been true for a very long time, and unless we see enormous amounts of growth, it will have to stay true. If you look at Fed plans to raise interest rates, you'll see that even in the highest estimates they're looking at fractions of a percent. Meanwhile, we're having months with 8% annualized inflation.
Until this year, we've hardly had any inflation since before 2008, at least. Deflation was a bigger concern. The margin between inflation and interest rates was very small.
I see what you are asserting, but again, what is all this based on?
"Locking you up" would cost a hell of a lot more money than simply updating your `isBlacklisted` field in a database entry. The latter could be done for every citizen at negligible cost.
Most points could already apply in current payments and banking systems with only a few big players (basically security, privacy).
The economic nightmare is maybe a degree up, but not really more. Generally speaking, it also tends not to be just "the government" doing stuff that no-one wants - there will be people liking whatever the policy is.
The only real new point is that CDBCs with any kind of programming would effectively be vouchers, not money (ie your first point).
- Efficiency: much of the legacy financial institutions are no longer needed in current form (going as far as the Fed and IRS). Opportunity to reform finance as a whole and remove legacy waste.
- Fraud detection: money laundering and financial crime becomes very difficult to hide
- Observability: much better data & insight into economic trends
- Security: Infra being controlled by a public org that can be held more accountable than a decentralized mess of private corporations (see endless Equifax leaks, etc)
- Responsiveness: can rapidly implement policy changes in response to crises
Efficiency: judging by the state of healthcare I sincerely doubt the legacy financial system will go away quietly.
Fraud detection: I'd be very concerned about false positives here.
Observability: forcing everyone to opt into a financial panopticon will have unintended consequences.
Security: we really struggle to hold any organization accountable. Public organizations are not magic, was anyone held accountable for solarwinds? The office of personnel management? If anything holding public entities accountable is even more difficult then private entities because of politics.
Responsiveness: The ability will be there, will it be used effectively or responsibly?
Agree on the privacy points, disagree completely on the security aspect. A centralized, government issued digital currency is FAR more secure than a decentralized one. The best security is deterrence: there is no better deterrence than having your security guaranteed by the FBI and the US Army (in the case of international hackers, messing with government systems is an act of war). Also, mistakes and hacks can be reversed -- it's just a central database, so it can be reset.
Good list, and I'd add something crazy sounding to the long list of potential nightmare problems with some kind of future centralized digital currency: forced spending through expiring money.
Keynesian economists that dominate a lot of official politics have a hard-on for viewing consumption as the root of all goodness and prosperity. In the midst of a future economic crisis with a central digital currency, it would be trivial for the politicians to start blaming a lack of spending for the problems and to force people to spend received money within X amount of time or it disappears from your digital wallet and thereby incentivize desired behavior. No real saving for the future possible: citizens would be turned into a cattle-like consumption class.
inflation is literally expiring money. I guess the difference is you could expire some but not all money, but what's to keep me from spending my expiring money on equity or something?
With a central digital currency, they could presumably dictate what kinds of items could be bought and sold.
If their goal was to spur consumption, they could block some types of investment from some or all people at any random time.
We already have different legal classes of investors based on wealth: you effectively need at least 25K in a broker to be able to day-trade, and the requirements to get a designation of accredited investor are even more substantial.
It would make it trivial to assign different rights based on wealth in a digital system and use it to enforce policy.
Your comment ignores the fact that we already have centralized digital transactions and they're all run by private, for-profit entities. I'm just some random dude with no other qualifications than I read the article, but here are my thoughts on your worries.
> complete and utter "financial deplatforming" if you don't behave as a citizen. This is basically China's CCP dream come true.
This problem has nothing to do with having a digital currency, if the government wanted to punish people "if you don't behave as a citizen", it has plenty of tools to do that already. Something like this would be huge government overreach and frankly a violation of the first amendment, I doubt if any law suggested this it would even make it to the supreme court.
Also the current centralized currencies such as PayPal and Banks already do this, if anything this gives deplatformed people more freedom as they have a viable digital alternative to purchase.
> total loss of privacy: the absolute entirety of your financial interactions are an open book to the government. You won't be able to buy a pack of gums without big brother knowing about it, much less paying for your sex toys
Banks already know this information and the government could audit the banks if it wants to. What's stopping a banker from publishing your purchase history? Many Decentralized currencies would also publicly show this. That said I think it's a totally valid point.
> security nightmare : preventing the leakage of citizen's private financial information.
This is true, hence why JP thinks "It's more important to do this right than to do it fast". As I said before though, banks and private companies already leak this kind of information.
> economic nightmare: running the printing press full steam is now instantaneous and gives the government even more unchecked power to spend money on brain-dead programs
I don't see how this changes anything. The Fed can already run the money printer to whatever throughput it needs. This doesn't change that. Only thing this changes is that it would be easier to give direct aid to citizens, especially the lowest 5% who don't own bank accounts.
>if there's healthy competition from decentralized chains such as Bitcoin, the craziness will be kept in check because there will be an escape hatch to the govt
Yeah that's why I kind of think this is a good idea. We already have private versions of this and we could always... Just use those if we don't want to use whatever Powell coin turns out to be. It only gives us more options. Also it would be great to have digital transactions without the $.35 fees
Maybe so (I disagree), but wait until central-bank issued digital currencies become a reality, you'll very quickly learn the real meaning of social catastrophe.
Spending 10 seconds thinking about it, I can come up with the following scenarios:
I don't think we will avoid the implementation of such an abomination, but I do believe that - like in everything political - if there's healthy competition from decentralized chains such as Bitcoin, the craziness will be kept in check because there will be an escape hatch to the govt. economic jail.