Ori Freiman, postdoctoral fellowship at the University of Toronto Ethics Center.
In recent years, interest in the idea of central bank digital currencies has increased. Like cash, central bank digital currencies are a form of money issued by central banks.
In each country, a central bank manages local currency and monetary policy to ensure financial stability. Unlike cash, central bank digital currencies are designed to adapt national financial infrastructures to the changing needs of the economy and technology.
Central banks, led by international financial institutions such as the Bank for International Settlements and the International Monetary Fund, research technology, conduct experiments and create national economic scenarios. However, central banks cannot – and should not – evaluate the social consequences of adopting this technology.
Moving to national digital currencies gives governments the ability to automate transactions and create the conditions in which to spend them. This has critical democratic implications that must be identified and considered before the central bank’s digital currencies become a reality.
Important questions to consider
Central bank digital currencies are expected to enable governments to fully control their citizens’ finances. States could prohibit citizens from buying services and goods, and governments would gain more influence and control over people’s lives.
For example, societies may decide whether a positive attribute of money is that someone who is addicted to gambling cannot buy a lottery ticket. Likewise, they could decide whether the welfare should be spent only on food, medicine and rent.
The introduction of the digital currency of the central bank raises a number of important questions. The first is whether people would take advantage of the new features of these digital currencies. The second question is whether we can be sure that these functions in the hands of governments will not undermine the already broken foundations of democracy. Both questions spark important discussions about the future and our values as a society.
There are also many unanswered questions that citizens, not central banks, should be thinking about. Do we want to link personal financial information with credit systems? What about sharing healthcare expenses or political donations with governments and corporations? What do we think about spending different money with different financial characteristics to different people? What is the social importance of storing cash alongside the central bank’s digital currencies? Do we need a digital currency of the central bank at all?
We do not want to leave these questions to the people who design and implement digital money systems or raise them too late. Currently, concerns about democracy lag behind the race to adopt the central bank’s digital currencies. We must have these discussions before it is too late.
When it comes to decisions related to the central bank’s digital currency infrastructure, each country should consider whether structural changes are needed to ensure democratic oversight and adequate checks and balances.
This applies not only to central banks, but also to security agencies and anti-money laundering and tax enforcement authorities, which will most likely have access to user data and be able to freeze accounts and confiscate funds.
It is up to democratic institutions to ensure that measures such as freezing the bank accounts of political dissidents do not become common practice.
Some will argue that central banks are only reviewing and preparing the infrastructure, and then the details will be completed by governments. But that kind of answer is unacceptable. It separates the creators of the system from those who will be responsible for its operation and, more importantly, from those who will be affected by it.
Varied discussion required
Debate requires a diverse mix of members of society, including those on the margins, the elderly and the poor, people living in remote areas and people with disabilities. Social organizations, science, citizens and the press should have different perspectives.
The bottom line is that central bank digital currencies are not only a matter of technology, but also a matter of political power and social justice. They can cause unintended, unwanted and unexpected social consequences – only time will tell what these consequences will be.
While central banks are responsible for raising social issues, democratic institutions must take the lead on this issue. Countries should only adopt digital currencies if they can ensure their governments and agencies do not cross the red lines. These rules and regulations must be established directly by democratic institutions, not only by central banks.
Ultimately, we are faced not only with technological advances in payment transactions, but a fundamental shift in the global financial infrastructure. It is to be expected that this change will lead to shifts in the social and political structure of societies, for which we must prepare democratically.
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