We all heard the threats of Central Bank Digital Currencies (CBDCs). Actually, they are not a threat since many countries, led by China, are going forward with them.
As much as individuals within the industry despise the idea, there is another group who is even more threatened by them: the bankers.
Just like cryptocurrency tied to permissionless blockchains is a direct threat to the banking system, we can easily see CBDCs pose another problem for them.
In short, it is the governments of the world looking to take over a fundamental aspect of the banking industry. Couple this with decentralized finance (DeFi) looking to end other aspects, and we can see how the bankers are cooked.
The Digital Wallet
The entire story starts with the digital wallet. This is a fundamental aspect of cryptocurrency yet changes the entire financial system.
When one has a wallet, say Bitcoin, there is no need for any other party involved. An individual has a place to store the Satoshis. At the same time, one can also send and receive money without permission. The blockchain handles the transactions along with the settlement. It is all very simple.
Of course, if we step back, this is what banks provide most people. They have a place to store their money. With an account, one can send and receive usually without issue. The bank handles all the transactions as well as the settlements.
We can already see how this is an affront on a fundamental service the banks provide.
CBDCs also contain a digital wallet. The main difference is that it will likely not be decentralized. Instead, it will be permissioned so the governments, and their minions, can maintain control.
There are some discussions about having the banks operate as custodians of the wallet. That is typical thinking but what is the point? Why would that even be required? The ledger is on some network that, presumably, the governments will control. A wallet simply accesses the data.
Governments Tend To Not Like Competition
Blockchain and cryptocurrency make banks obsolete. Since the basis of their business is stripped by the digital wallet, many other factors instant melt away.
For example, many banks depend upon deposits as the core for their model. They take in money and then engage in interest bearing transactions. This is effectively cutting the head right off. Without this cashflow, there is little that can be done to prop up the other aspects of the business.
If the governments of the world can wrestle away control of the money system from the banks, it is likely they take that opportunity. As we in the world of cryptocurrency world already see, the banking system, on many levels, is already redundant.
It is only logical to think that the governments will want to step in and assume that role. After all, we are told cryptocurrency is a threat to the stability of the financial system. Of course, if it is run by the government, then all is well.
CBDCs can be government's entry into control over the monetary system. Many believe the major currencies are controlled by governments but they are not. It is the commercial banking system that determines the supply through loans.
With CBDCs, the politicians will not have to worry about that. They can fund their pet projects, at least until they destroy the confidence people have in them.
The Private Sector Always Controlled The Money
Throughout history, the private sector was the one who always controlled money. This does not appear to be logical until one realizes that money is used for commerce. It is the basis for business. Regardless of what governments do, people need to engage in some form of trade to sustain themselves. Here is where the government-led utopian ideas falter.
Even in the days of coinage, we saw the emergence of ghost money through merchant credit. This effectively turned many business people into money creators.
Today, with cryptocurrency, we are rapidly approaching the point where anyone can be a money creator. As the technology improves, we are going to see people able to easily spin up new tokens. Depending upon the use case, this will serve some of the functions of money for a handful of people.
Multiply this out over thousands of tokens and we see how big the impact can be. Thus, even before CBDCs gain any traction, the bankers are staring down at their demise. The utility they provide is no longer needed.
Hence, we can see the atypical battle of the governments versus the people shaping up. If the bankers are removed from the equation, it will just pit the masses against the few using the power of government. The question will be who wins in the end?
Fortunately, the way government is structured these days, it was not built to operate in the digital world. This is an entirely new arena for them, something that seems to have them lagging.
They will try to keep pace in the money game with CBDCs. IT is their best chance to try and retain power. Sadly for them, the spread of cryptocurrency and all its tentacles is moving at a faster pace. Each day, more development occurs. The collective effect, over a few years, will be a complex organic system that is global in nature. It will also reside exclusively in the digital world.
The establishment still things in terms of geographic area, jurisdiction, and nation-state. In the digital realm, none of these even factors in.
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