CBDCs will eventually demonstrate to be the most contentious due to their lack of privacy.
The concept of Central Bank Digital Currencies (CBDCs) is gradually taking reality. Although the initial buzz may have subsided, these digitalized forms of legal tenders seem to be here to stay, much to the dismay of crypto supporters. Around 100 countries are reportedly actively exploring the concept in one way or another.
Despite not having been fully implemented yet, CBDCs have drawn a lot of attention.
Also Read: CBDC: A Complete Guide to Central Digital Currencies
Social Experimentation
Project Rosalind, a central bank digital currency (CBDC) initiative with the Bank of England, jointly managed by the BIS Innovation Hub London Centre, developed 33 API functionalities and efficiently explored more than 30 retail CBDC use cases covering a wide range of domains for both individuals and businesses.
In order to test CBDC, Ripple collaborated with Banco de la Repblica, Colombia’s central bank.
According to KuCoin, recent events demonstrate that CBDCs have emerged as a significant indicator of blockchain technology’s growing significance, surpassing the initial perception of the technology as a passing trend. According to a cryptocurrency exchange spokesman,
“Online transactions and e-commerce have grown in popularity as an outcome of the rapid growth of the Internet. Whether it’s the CBDCs operating in various countries or the blockchain-based cryptocurrencies, I believe they’re all part of a grand social experiment that brings humanity into the digital age.
Moreover, he added, “As they will contribute to the development of society and the creation of a better world for mankind, these explorations deserve recognition and praise.”
The sudden collapse of Sam Bankman-Fried’s crypto-empire, FTX, is one of the primary factors that have influenced conversion concerning counterparty risk and the need for a trusted service provider in a jurisdiction that is effectively regulated, comprehensive, transparent, and logical.
In this regard, David Newns, Head of SIX Digital Exchange (SDX), considers CBDC projects around the world to be empirical evidence that financial entities prioritize fraud prevention, emphasizing licensed service providers and currencies backed by the issuing central bank or government.
“After all, the higher level of safety, stability, and regulatory compliance of CBDCs compared to other cryptocurrencies is one of its key advantages. The potential of the growing ecosystem for digital assets would be unlocked by using a high-quality, safe, and stable CBDC for the settlement of such transactions while lowering their overall risk profile.
Enslavement Through Technology
Despite the fact that many experts believe CBDCs should be seen positively for the blockchain community since they demonstrate the government’s interest in the technology being utilized to reduce the risk associated with international payments, many privacy advocates disagree. Their primary response revolves around digital enslavement.
If CBDCs are correctly implemented, according to Vineeth Bhuvanagiri, managing director of EMURGO Fintech, they might be an essential real-world use for the technology.
The governments looking into this, however, “need to fully understand what the technology is good for, and where it doesn’t add value, because I believe a lot of the concern surrounding CBDCs is the intent to use them as a mechanism of capital control.” The executive continued,
“This would contradict the fundamental tenet of blockchain. If the government wants to impose additional control, blockchain technology is not the right tool for the task because its key value proposition is uncensorable financial independence.
Graham Steele, Assistant Secretary for Financial Institutions at the Treasury Department, addressed this issue by stating that a key component of a retail CBDC is limiting illicit transactions while ensuring user privacy. He discussed the usage of privacy-enhancing technologies to safeguard user anonymity.
Steele outlined the advantages and disadvantages of a potential CBDC, emphasizing that it might encourage a competitive payment system. However, there has been substantial opposition from Ron DeSantis and Robert F. Kennedy Jr. According to the duo, such a payment system would give the government undue control.
Legal Challenges
The main legal challenges, according to SDX’s News, will arise in the context of global adoption and depend on the perspective of regulatory framework harmonization and cooperation among central banks worldwide to support interoperability and cross-border transactions.
According to EMURGO’s Bhuvanagiri, the legal arguments around CBDCs will ultimately come down to privacy concerns and the restrictions the government wants to impose on them. He asserted that once granted, CBDCs are free to go anywhere in the world if the government considers them like cash. A situation like this is seen to be ideal because it would benefit from all the advantages that blockchain technology offers.
“People would be able to manage their own assets and carry out transactions as they see appropriate, increasing their financial independence at the expense of a higher chance that their money may be misused. The contentious issue would be how the government limits or monitors the transactions.