When FTX crashed in November 2022, it triggered a multi-billion dollar exodus spree, bringing Bitcoin down 22% in a single day. By the end of the month, the European Central Bank (ECB) fired an unusual shot across the crypto bow. As Bitcoin’s price stabilized, the central bank suggested this is Bitcoin’s “last gasp before the crypto-asset embarks on a road to irrelevance.”
Interestingly, the ECB’s public comment came from a competitive standpoint. The co-author of “Bitcoin’s Last Stand” was Ulrich Bindseil. As ECB economist, Bindseil authored a paper titled “Central Bank Digital Currency – Financial System Implications and Control” in May 2019. The paper clearly outlined where the monetary system is heading.
| Benefit of CBDC | Possible further factors or requirements |
|---|---|
| A. Efficient retail payments | |
| A.1 Making available efficient, secure and modern central bank money to everyone | In particular in economies without high-quality electronic commercial bank money, and/or without a secure and efficient payment system |
| A.2 Strengthening the resilience, availability and contestability of retail payments | In particular in economies in which banknote demand vanishes and private electronic payments solutions lack competition |
| B. Overcome use of banknotes for illicit activities | |
| B. Better control of illicit payment and saving activities, money laundering, and terrorist financing | Requires (i) discontinuation of banknotes (or at least of larger denominations); (ii) CBDC to not take the form of anonymous token money |
| C. Strengthen monetary policy | |
| C.1 Allows overcoming the ZLB as negative interest rates can be applied to CBDC | Requires discontinuation of banknotes (or at least of larger denominations) |
| C.2 Interest rates on CBDC provide for additional monetary policy instruments, independently of ZLB | |
| C.3 Easier ability to provide helicopter money | Requires that each citizen has a CBDC account |
| D. Sovereign money related | |
| D.1 Improve financial stability and reduce moral hazard of banks by downscaling the role of the banking system in money creation | CBDC takes over to large or full extent sight deposit issuance by banks |
| D.2 Larger seignorage income to state (and citizens) as state takes back money creation from banks. | CBDC takes over to large or full extent sight deposit issuance by banks |
Table 1: Overview of benefits that some have associated with CBDCs, and related factors or requirements
In other words, Bitcoin and CBDCs are heading for a clash – surveillance token vs sovereign money. The world’s financial institutions, from IMF and BIS to ECB, have already established that anonymity is a problem to be solved, so a CBDC token cannot retain the properties of cash in digital form.
“However, anonymity can also be used for illicit purposes and can undermine AML/CFT measures. Anonymity, therefore, poses a policy trade-of—the more anonymity, the larger the risk for illicit use.”
Behind the Scenes of Central Bank Digital Currency, IMF eLibrary
Given the programmable nature of CBDC tokens, that “illicit use” can then be extended ad infinitum. Money, as we know it would no longer be a social engineering tool. Case in point, NatWest Bank integrated Carbon Planner and Carbon Footprint Tracker under the climate change narrative.
With further integration of CBDCs, such features could turn overnight from opt-in features to a Chinese-style social credit system. Once a citizen’s ID is integrated into a CBDC account, few steps remain to build a new social landscape.
For instance, taking advantage of its erected COVID-19 surveillance infrastructure, China can turn off citizen’s access to public travel as they try to get their frozen money out of commercial banks. Bank customer Liu, per Reuters:
“I can’t do anything, I can’t go anywhere. You’re treated as though you’re a criminal. It infringes on my human rights.”
Even without CBDCs, such a scenario played out in Canada during the trucker convoy protests against lockdowns and vaccine mandates. It is no understatement to say this decade will be a turning point. One in which the nature of money will be fully explored.
Will money become a leverage for social planners, or will citizens take advantage of non-governmental money that is truly sovereign?
In this rapidly evolving monetary landscape, what role does Bitcoin play?
Bitcoin’s Decentralized and Open Framework
Bitcoin emerged as an elegant marvel of software engineering. The task before it was daunting. How to secure a publicly verifiable accounting of wealth without any governing body?
Bitcoin’s network architecture archives this through permissionless decentralization. Anyone with internet access can become an auditor, a network node that verifies data blocks containing all the transactions. These full nodes contain the entire ledger…