Central Bank Digital Currencies (CBDCs) are gaining traction as a potential advancement in the world of finance. These digital representations of national currencies, regulated and issued by central banks, have the potential to transform the way we transact, invest, and save money. Recently, the Bank for International Settlements (BIS) and the central banks of France, Singapore, and Switzerland successfully conducted cross-border trading and settlement of wholesale CBDCs using smart contracts and a public blockchain. This test showcases the potential for using CBDCs in decentralized finance applications.
CBDCs offer several advantages, including improved financial inclusion, greater efficiency, reduced fraud, more responsive monetary policy, and enhanced data analysis. However, as governments worldwide explore the implementation of CBDCs, citizens’ concerns fueled by distrust of government surveillance have emerged.
The United States, known for its technological innovation, is lagging behind other countries in developing a CBDC. The Federal Reserve has stated that it is far from introducing a digital version of the dollar and would only proceed with the “clear support” of the president and Congress. A recent survey by the Cato Institute revealed that only 16% of Americans support the adoption of a CBDC, while 34% oppose it. The hesitation can be partially attributed to the emphasis on personal freedoms in American political and historical traditions. The survey also indicated that 78% of Americans would be unlikely to use a CBDC, with 55% stating they would be “very unlikely” to use one. Concerns regarding government surveillance and control are particularly pronounced among conservatives.
Resistance to CBDCs in the US is also influenced by the potential disruption of the country’s decentralized financial system. The US has a robust banking sector and well-established payment processors, with the US dollar serving as the world’s reserve currency. Policymakers fear that CBDCs could destabilize financial markets and diminish the dollar’s influence. Moreover, the US has historically valued limited government intervention in financial services, which contributes to skepticism toward government-controlled currencies. The complicated regulatory landscape and adjusting the regulatory framework also pose significant challenges to implementing a CBDC.
The concerns expressed by US citizens are not unique, as citizens worldwide are apprehensive about government surveillance and control associated with CBDCs. These concerns include privacy violations, government control over individual accounts, political misuse, and cybersecurity risks. Nigeria’s eNaira, Africa’s first CBDC, has struggled to gain acceptance due to similar citizen concerns. The eNaira operates on a private blockchain network, controlled solely by the Central Bank of Nigeria (CBN), leading to skepticism regarding adoption and potential government control.
To address citizen distrust, governments and central banks must implement transparent regulations, robust cybersecurity measures, strict data protection laws, and establish checks and balances to prevent abuse of power. Public education campaigns about the benefits and risks of CBDCs are also crucial.
Ultimately, the success of CBDCs in the real world hinges on governments’ ability to address citizens’ concerns about government surveillance. Striking the right balance between innovation and privacy is essential to ensure that CBDCs align with citizens’ interests rather than fueling discontent and resistance.
