CBDC vs Cash: Which Is Better for You

Envision a world where your money is no longer a tool for personal freedom, where every purchase you make is tracked and added to your permanent record. Central Bank Digital Currencies (CBDCs) make that dystopian nightmare possible — and they’re coming. 

Much controversy surrounds the effort to enforce CBDCs. As 114 countries seek to introduce them, skeptics worry about CBDC tracking reducing our personal privacy and financial freedom. 

Central banks say CBDCs will safeguard your privacy and enhance convenience. However, it’s hard to see how governments having full access to your finances is good for privacy. Moreover, people are questioning whether the potential increase in convenience is worth it – we already have instant transactions for the majority of our daily activities that involve money.

Many privacy advocates and economic leaders warn governments may use CBDCs for control and heavy-handed surveillance. Governments have a history of wanting power over people. Currently, most countries don’t have the tools to take control of your purchases and lifestyle. What would happen if they did? Would they continue to present their classic campaign-ready altruistic fronts? Or would things quickly turn ugly?

Let’s answer some key questions, including what are CBDCs, how are they different from cryptocurrency, and what are the risks of CBDCs. Before we get into all that, here’s a quick history of money to give you some context about how significant CBDCs are.

A Brief History of Money

Trade is an integral part of human history and it existed even before cash. People exchanged goods in a value-based barter system and that worked for quite a long time. Dairy farmers could trade a gallon of milk with their neighboring chicken keeper for a handful of eggs. 

The barter system wasn’t centralized, and transactions weren’t overseen by any authority. People could exchange goods freely as long as both parties agreed on the deal. There were problems, sure, but the system still works on a small scale.

Physical currency first came on the scene more than 2500 years ago. Some debate exists about where the first coins were used. Most Western historians credit the Lydians with creating the first coins around 650 BC. Around the same time, China also started using coins which often featured a small square hole in the center for easier storage and transport. 

China was the first to introduce paper cash in the 7th century, although it didn’t become commonplace until the 11th century. Other countries began to adopt these systems which slowly led to trade conflict.

The absence of a global standard meant countries could assign higher values to their currencies to gain strategic advantages over trade partners. Countries would also print more money as they pleased, which wasn’t sustainable long-term as the increasing amount of a currency makes it less valuable.

Sir Isaac Newton is credited with creating the gold standard, which countries used to standardize currency value and make cross-border trade fairer. In the 1900s, the United States created the Gold Standard Act to combat inflation, which can work so long as the country does not print more money than its gold reserves. As you can probably tell, this was the downfall of the gold-pegged dollar, which had to be abolished 70 years later.

The need for a centralized money system led to the emergence of central banks, which according to American economist Michael D. Bordo, fulfill three key goals: 

1. Price stability
2. Stable real economy
3. Economic crisis prevention

The Swedish Riksbank was the first centralized banking system, established in 1668, followed by the Central Bank of England a few decades later in 1694. 

In 1913, the United States created the Federal Reserve System to increase financial flexibility and stability. Payment cards came soon after that, as two New York-based businessmen invented the first credit card — the Diners Club card.

The 21st century has seen the introduction of mobile payments and virtual currencies, with Bitcoin being the first cryptocurrency, in 2009. Cryptocurrencies created a whole new paradigm where people could make digital payments anonymously. They’re also completely decentralized and most are based on blockchain technology.

Although cryptocurrencies recently gained popularity, the proliferation of altcoins and crypto scams has…